Global markets traded lower and the euro hit a three-month low against the dollar on Monday as a weekend decision by the euro zone to force bank depositors in Cyprus to contribute towards a bailout provided a stark reality check for investors.
The losses were limited however, on reports the Cyprus government would put forward a new proposal on Monday to reduce the levy imposed on bank deposits.
European shares traded sharply lower with Spain's IBEX down 1.74 percent and Italy's MIB down 2 percent. Asian equity markets, took a sizable hit with Japan's Nikkei 225 and Australia's S&P/ASX 200 down 2.7 and 2.1 percent, respectively. The euro/dollar which fell to $1.2890 down from $1.3054 late in New York on Friday, recovered somewhat by mid-morning London time..
"Cyprus deposit haircut moves risk-on trade to backseat," Pimco's Bill Gross posted on Twitter late on Sunday. "Sell euro as well," he said.
Evan Lucas, market strategist at IG markets, added, "Expect the selloff to be hard today [Monday], barring any positive news coming out of Cyprus."
Lawmakers in Cyprus will hold an emergency session of parliament Monday to vote on the euro zone's decision to force bank depositors to contribute towards a 10 billion euro bailout. A levy will be placed on deposits of all sizes in return for financial aid and marks a radical departure from previous euro zone aid packages.