• Inside Labour

    Terry Bell explores the connection between poultry, poverty and desperation.

  • A new ANC sweeper?

    Have the Guptas' new auditors mastered how to look the other way on cue, asks Solly Moeng.

  • Strategy for the big boys

    Formulating strategy across the span of huge companies is a marathon, says Ian Mann.

All data is delayed
See More

Vulnerable euro hits decade low against yen

Jan 02 2012 11:45
London - The euro fell to a decade low versus the Japanese yen on Monday as concerns about the financing needs of indebted euro zone countries continued to weigh on the shared currency, though moves were exacerbated in holiday-thinned trade.

The euro fell as low as 98.71 yen on EBS trading platform, its lowest since late 2000, extending falls seen on Friday when it broke below 100 yen to finish the year down around 8%.

It later recovered to 99.60 yen, with liquidity thin as Asian, British and U.S. markets closed for New Year holidays. Versus the dollar, the euro was at $1.2941, less than a cent above its 2011 low of $1.2858 hit last week.

Worries about sovereign debt levels and a lack of policy solutions to the region’s 2-year-old debt crisis were expected to push the euro lower in the coming weeks and months.

However, the euro’s slide may be limited by periodic short-covering rallies as investors unwind hefty bets against the currency, with Commodity Futures Trading Commission data on Friday showing short euro positions swelled to a record in the latest week.

“There’s still a lot of pressure on the euro due to concerns about the refinancing needs of some euro zone countries in the first quarter,” said Arne Lohmann Rasmussen, head of currency research at Danske Bank in Copenhagen.
“This is driving many to safer assets and currencies, like the Japanese yen”.

However, he said the substantial number of short euro positions could limit the euro’s falls, potentially enabling it to rebound back above $1.30 versus the dollar, especially if U.S. ISM and jobs data this week point to an improving U.S. economy.

Nevertheless, in the absence of a comprehensive European policy response to the debt crisis, the euro could test its 2010 low of $1.1876 next year, some traders said. Policymakers marked the 10th anniversary on Sunday of the introduction of euro notes and coins by urging governments to save and consolidate to overcome their debt crises, while warning 2012 would be harder than 2011.

Concerns about the massive task facing European leaders as they struggle to contain the region’s debt crisis were highlighted as Spain’s new government warned last week its 2011 budget deficit would be larger than expected.

A deteriorating euro zone economy will also worry investors, with many anticipating a recession in the region. A survey on Monday showed euro zone manufacturing activity declined for a fifth consecutive month in December.

Debt auctions eyed

From around $1.33 in January last year, the euro soared to $1.4939 by May, then began a steady descent as the crisis that began in smaller countries such as Greece and Ireland spread to the larger core economies of Italy and Spain.

Italy, the euro zone’s third-largest economy, remains at the centre of the debt crisis, and its borrowing needs could overwhelm the bloc’s financial defences if it were forced to seek an international bailout.

In the coming months, auctions of euro zone bonds will be closely watched by investors who are nervous that appetite to buy peripheral debt may be waning.

“We remain a sell on rallies (with the euro) as we tend to think the euro zone crisis will actually get worse before it gets better,” Kathleen Brooks, research director at FOREX.com in a note to clients.

The euro’s troubles have benefited the dollar and yen, both of which tend to attract safe-haven flows in times of trouble.
Against a basket of major currencies, the dollar was up 0.1 percent at 80.237, having hit a near one-year high of 80.854 last week. The dollar fell to a\ one-month low against the yen of around 76.30 yen.

Still, questions remain about the strength of the U.S. economy and whether the Federal Reserve will opt for a third \round of monetary easing to boost ending and growth. Sterling dipped 0.25 percent to $1.5496, while the Australian dollar was steady at $1.0220.



Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The drop in inflation:

Previous results · Suggest a vote