Euro continues to suffer

The euro is close to its lowest level in four months against the US dollar as Cyprus risks ejection from the eurozone after rejecting the terms of a bailout. However, many analysts believe that, as in the past, the European Union will work to hammer out a compromise as the implications of Cyprus being expelled from the single currency are too far reaching.

Unfortunately the implications for the euro are currently all negative. The single currency is at $1.2862 after hitting a low of $1.2843. The euro was prevented from dipping even lower by an announcement by the European Central Bank that it will provide liquidity to banks in Cyprus, within certain limits.

The euro has dropped against the yen to 122.27 yen, and the dollar was slightly softer at 95.07 yen as the Japanese currency regained some of its reputation as a safe haven. However, investors will be aware that new Bank of Japan governor Haruhiko Kuroda is likely to begin implementing aggressive monetary policy in an effort to fight deflation.

Although the euro even managed to fall against the pound to a near 85 pence five-week low, sterling will come under pressure on Wednesday, if Chancellor George Osborne allows the Bank of England to step up asset buying in an effort to kick start the economy.

In the US, investors will be looking to a news conference later by Federal Reserve chairman Ben Bernanke to see whether quantitative easing will be wound up earlier than expected.