Euro drops to four-month low versus dollar

The euro fell to the lowest level in more than four months versus the dollar as a bailout for Cyprus and political deadlock in Italy undermined demand for the region's assets.

Europe's shared currency declined against most of its major peers after Swiss bank Pictet & Cie. said the Cyprus crisis has "tarnished" the attractiveness of the euro area. The yen slid a second day against the greenback before Bank of Japan (8301) Governor Haruhiko Kuroda appears in parliament tomorrow after telling lawmakers yesterday he aims to achieve the 2 percent annual inflation target in two years. The Dollar Index rose a third day before data forecast to show U.S. home sales fell in February.

"The precedent set by Cyprus and the political uncertainty in Italy mean that risk premia in the euro-region will continue to go wider," said Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada in London. "The risk of the bail-in of depositors in a future banking crisis has increased and market prices have to reflect that. The euro will grind lower."

The euro dropped 0.2 percent to $1.2831 at 9:24 a.m. London time, after touching $1.2817, the lowest level since Nov. 21. Europe's shared currency was 0.2 percent lower at 121.26 yen. Japan's currency fell 0.1 percent to 94.51 per dollar, extending yesterday's 0.3 percent slide. Cyprus may announce what types of capital controls it plans to implement today as its leaders seek to prevent cash outflows when the nation's banks reopen. Lenders have been closed since a plan by the European Union to force losses on some bondholders and depositors in exchange for a 10 billion-euro bailout. Italy plans to sell as much as 7 billion euros of debt at an auction today.

The euro has fallen 0.7 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developednation currencies.