March 18 (Bloomberg) -- The euro dropped to its lowest level this year against the dollar after an unprecedented levy on bank deposits in Cyprus threatened to derail the nation’s bailout and spark a new round in Europe’s debt crisis.
The 17-nation euro declined by the most in three weeks against the yen as investors sought haven assets after Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. The yen rose against all 16 major peers after Anastasiades delayed a vote on the measure in parliament until today.
“The concern is that this bailout plan was forced upon deposit-holders taxing them and therefore an involuntary support for the bail-out,” said Imre Speizer, a strategist at Westpac Banking Corp. in Auckland. “If this is a template for future bailouts then that’s worrying for any of the larger countries if they have to go down this route. It isn’t affecting only the euro, it’s affecting risk appetite in general.”
The euro slid as low as $1.2905, the lowest level since Dec. 10, before trading at $1.2925 as of 6:20 a.m. in Tokyo. It dropped 2.1 percent to 121.98 yen. The dollar fell 0.9 percent to 94.38 yen. Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm that settled over the 17-member bloc since the European Central Bank’s pledge in September to backstop troubled nations’ debt. With no government in Italy, Spain in the throes of a political scandal and Greece struggling to meet the terms of its own bailout, more turmoil could hamper efforts to end the crisis.