By Dow Jones Business News, March 18, 2013, 10:17:00 AM EDT
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) -- The euro was at the epicenter of a selloff for financial markets on Monday as investors sought
safety in the dollar after Cyprus announced plans to impose a one-time levy on bank deposits as part of a deal for a
sovereign bailout.
Over the weekend, international lenders agreed to provide a 10 billion euro ($12.9 billion) bailout for Cyprus, but in
return they demanded that the nation help pay for its rescue by taxing bank deposits -- an unprecedented step in the
long-running euro-zone crisis.
In a parliament session starting later on Monday, Cyprus President Nicos Anastasiades will defend his decision to
accept the rescue package, including the tax on deposits. Euro-area finance ministers who met over the weekend in
Brussels agreed on the deposit tax. That tax, expected to raise EUR5.8 billion, has sparked worries of a potential bank
run in other hard-hit and indebted European nations, such as Italy and Spain.
The news pressured the euro and boosted the dollar, which is seen as a safe-haven currency.U.S. stocks fell as well.
The euro (EURUSD) -- the single currency for 17 European Union nations, including the island nation of Cyprus --
dropped to $1.2925 on Monday, from $1.3076 in North American trading Friday.
The Cyprus bailout plan has "pushed the euro sharply lower at the start of the trading week amid rising fears of mass
capital flight," wrote Ilya Spivak, currency strategist at DailyFX, on the company's website. He said that the market
fears that investors across the euro zone could panic and scramble to move their capital out of the region.
"This potentially carries the risk of [a] regional credit crunch, which could raise questions about the solvency of
some weaker lenders. If one were to topple, a global crisis akin to the fall of Lehman Brothers would not be out of the
question," Spivak wrote.
Over the weekend, Bill Gross from bond giant Pimco wrote on Twitter: "Cyprus deposit haircut moves risk-on trade to
backseat. Sell euro as well." ((Read more about why markets are in an uproar here: http://blogs.marketwatch.com/
thetell/2013/03/18/cyprus-deposit-levy-shakes-up-markets/.))
The dollar index (DXY) , which measures the greenback's performance against six rivals, climbed to 82.624 in early
U.S. trading on Monday from 82.277 in North American trade on Friday.
The WSJ dollar index , which measures the greenback against a wider currency basket, rose to 73.45 on Monday, from
73.26 on Friday.
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