Asia currencies gain as Cyprus bailout fears hurt euro
Asian currencies have continued to strengthen as uncertainty over the developments in Cyprus hurt the euro.
On Tuesday, Cyprus rejected a controversial levy on bank deposits, proposed by the EU and IMF as part of their bailout package for the country.
Fears that Cyprus's two biggest banks may collapse if a bailout is not agreed have seen investors ditch the euro and turn to relatively safer assets.
The Japanese yen, Australian dollar and US dollar all rose against the euro.
The Japanese currency gained as much as 1.4%. It was trading at near 122.22 yen to a euro in Asian trade.
Meanwhile, the Australian dollar hit a ten-week high of A$1.24 against the single currency, while the US dollar was trading at near four-month high of $1.2843.
Analysts said that investors were worried about how Cyprus's crisis may unfold in the coming days, especially if any strict conditions may be imposed as part of a potential bailout.
"It leaves Pandora's Box wide open," said Mike Moran, senior currency strategist at Standard Chartered.
"If policymakers initially thought it was OK to tax depositors as heavily as they first suggested, one just doesn't know what plan B or C might be."
Mr Moran added that the given the uncertainty surrounding the crisis, the euro was likely to weaken further.
"Unless we have a swift resolution, this will weigh on the outlook for the currency," he said.
The EU and the IMF had asked Cyprus to impose a levy on bank deposits as part of a 10bn euro (£8.7bn; $13bn) bailout package.
According to the original proposal, announced over the weekend, savers with deposits of up to 100,000 euros (£86,000; $130,000) would have had to pay a one-off levy of 6.75%, while those over that amount would have been charged at 9.9%.
The pact was widely criticised and saw customers make a rush to withdraw money.
On Tuesday, the Cypriot finance ministry announced a change in the plan that would exempt savers with less than 20,000 euros in deposits. But it said those over 100,000 euros would still be charged at 9.9%.
The plan was still rejected by the parliament with no MP voting for it.
Meanwhile, the country's banks have been ordered to remain shut until Thursday, amid concerns of a run on bank accounts.
However German Finance Minister Wolfgang Schauble said he "regretted" the vote and that Cypriots must understand that European Central Bank aid was contingent on a reform programme.
"There's a danger that they won't be able to open the banks again at all," he said.
"Two big Cypriot banks are insolvent if there are no emergency funds from the European Central Bank."
The crisis has triggered fears that the eurozone debt crisis may escalate again and hurt global economic recovery.
This has impacted global stock markets. On Tuesday, the S&P 500 index fell for a third straight day.
On Wednesday, some Asian stock markets also dipped as investors continued to worry over the impact this may have on Asian economies, which rely heavily on demand from Europe for their exports.
South Korea's Kospi index fell 1%, while Australia's ASX 200 was down 0.4%.
Analysts said that markets were likely to remain under pressure.
"It seems like you're going to have a run of negative press over the next few days at least," said Michael Turner, strategist at Royal Bank of Canada in Sydney.
"So until this plays out and until that cloud is dealt with, it's going to be hard to get too optimistic on the outlook in the near term."