Fri Dec 30, 2011 7:39am EST
* Euro down 0.2 pct vs dlr, more pressure seen in 2012
* Euro hits 10-year low below 100 yen
* Euro zone auctions early in new year seen as key
By Nia Williams
LONDON, Dec 30 (Reuters) – The euro hit a 10-year low
versus the yen and fell against the dollar on Friday, ending the
year on a weak note after breaking below key support levels, and
it looked set to remain under pressure in 2012 from Europe’s
debt crisis.
The single currency was down 0.2 percent versus the
dollar at $1.2932 in thin trade.
Helped by investors squaring positions before year-end, it
recouped some losses from Thursday, when it sank to a 15-month
low of $1.2858 as high yields at an Italian bond auction
prompted euro selling.
Market players said Friday’s fall was exacerbated by a lack
of liquidity but with the euro having broken decisively below
$1.30 earlier in the week this level would act as resistance to
any rebound.
It also lost around 0.5 percent against the Japanese yen
to hit a decade low of 99.963 yen on the EBS trading
platform, breaking below an options barrier at 100.00 yen.
“The euro has held up relatively well given the crisis we’ve
seen, but that view is likely to come under pressure in the new
year,” said Simon Smith, economist at FXPro.
“There is huge focus on what’s going on in Europe. Next year
is likely to be the year when either euro zone leaders send the
region on a path towards greater fiscal integration or we see
some of the more vulnerable countries having to leave.”
Currency movements on Friday were expected to be driven by
year-end flows, though analysts said investors would look at
Spanish government savings measures, set to be announced later,
for signs of how Madrid plans to cut its deficit.
Traders said falls in the euro versus the yen were partly
driven by the dollar extending losses against the Japanese
currency after triggering stop loss orders on the break
below 77.50 yen. It was last at 77.40 yen.
The dollar index was at 80.362, off a near one-year
peak of 80.854 hit on Thursday.
2010 EURO LOWS EYED
This year the euro has lost more than 3 percent versus the
dollar, adding to a 6.6 percent decline in 2010. It has also
lost almost 8 percent against the yen.
Some analysts said the currency could drop as low as $1.20
by the end of 2012 in the absence of a comprehensive policy
response to the crisis, potentially moving towards its 2010 low
of $1.1876.
Italy, the euro zone’s third-largest economy, remains at the
centre of the debt crisis that began in Greece two years ago,
and its borrowing needs could overwhelm the bloc’s financial
defences if it were forced to seek an international bailout.
Ten-year Italian yields are above the 7 percent level seen
as unsustainable, with the country needing to raise 450 billion
euros in debt markets in 2012. Government issuance of new euro
zone debt will be scrutinised for any sign investors are
shunning the currency bloc.
“If the euro is going to be salvaged the market needs an
injection of faith over the next few weeks. The Italian and
Spanish auctions are key,” said Neil Mellor, currency strategist
at Bank of New York Mellon.
Analysts expect euro zone funding pressures to intensify in
early 2012, with 230 billion euros of bank bonds, up to 300
billion euros in government bonds, and more than 200 billion
euros in collateralised debt maturing in the first quarter.
Last week the ECB provided banks with almost half a trillion
euros in three-year loans at low rates to encourage lending.
Some policymakers have urged banks to use the funds to buy
Italian and Spanish sovereign debt.
But the latest ECB data suggested banks were hoarding the
cash, with 445 billion euros being deposited in the central
bank’s overnight facility, up from 436 billion euros the
previous day.
The Australian dollar rose 0.3 percent to $1.0171,
shrugging off HSBC China PMI data that showed Chinese factory
activity had shrunk again in December.
