The crisis in Cyprus deepened further yesterday after MPs voted down the bank deposit levy, putting the bailout for the euro minnow into huge doubt.

Despite renegotiating the terms of the bank levy, so that accounts with less than €20,000 are protected, 36 of the 55 parliamentary members voted down the unprecedented measure warning that it could cripple the economy. The news sapped demand for the euro over concerns that we could be seeing a resurgence of the euro zone crisis. The euro finished 0.62% weaker against the pound and the US dollar yesterday.

The crisis in Cyprus deepened further yesterday after MPs voted down the bank deposit levy, putting the bailout for the euro minnow into huge doubt.

Despite renegotiating the terms of the bank levy, so that accounts with less than €20,000 are protected, 36 of the 55 parliamentary members voted down the unprecedented measure warning that it could cripple the economy. The news sapped demand for the euro over concerns that we could be seeing a resurgence of the euro zone crisis. The euro finished 0.62% weaker against the pound and the US dollar yesterday.

So, what next? Market participants will now be focusing on Cyprus’s ‘plan B’ to raise the €5.8bn required for the bailout, with reports floating around that Russia could lend support by relaxing its loan terms or agreeing on higher taxes on Russian deposits.

As ever in an uncertain market place, the US dollar attracted support, gaining against most of its 16 major counterparts. The US dollar also drew support following a rise of 4.6% in building permits in February and a rise of 0.8% in US housing starts in February, suggesting that momentum for the country’s recovery is gathering pace. Demand for the US dollar was also fuelled on expectations that the Federal Reserve will make no changes to its monetary policy when it is announced later this evening.

Away from Cyprus, the UK will be put into the spot light today as George Osborne is set to unveil £2.5bn in spending cuts when the Budget is revealed. Osborne may also announce that the Bank of England may be given additional powers in order to stimulate the economy. Before the budget, however, investors will be keeping a close eye on the outcome of the BoE minutes, with particular attention to any additional members voting for further quantitative easing.

Further euro weakness cannot be ruled out, giving the growing uncertainty surrounding Cyprus. However, as a word of caution, sterling’s gains against the single currency could be limited depending on the outcome of the Budget and minutes meeting.

Key Announcements:

9.30am – GBP – BoE Minutes Meeting.

9.30am – GBP – Claimant Count Change: Expected to improve to -5,000.

9.30am – GBP – ILO Unemployment Rate: Expected to remain at 7.8%.

12.30pm – GBP – Budget Report.

15.00pm – EUR – Consumer Confidence: Expected to improve to -23.3.

18.00pm – USD – Fed Interest Rate Decision.

18.30pm – USD – Feds Monetary Policy Statement.