The euro capped off the most tumultuous year in its short history on Friday, slipping to a 10-year trough below 100 yen and struggling to hold gains against the dollar, a trend traders expect to continue in 2012.
According to Reuters, the euro fell 0.9 percent to 99.77 yen and looked set to end the year down more than 8 percent against Japan’s currency.
It held up a bit better against the dollar, shedding 3.1 per cent since the start of 2011, but day-to-day trading for most of the year was extremely volatile.
From around $1.33 in January, the euro soared to $1.49 by May, then began a steady descent as a euro zone debt crisis that began in smaller countries such as Greece and Ireland spread to the larger core economies of Italy and Spain.
On Friday, the euro traded at $1.2958, about a cent above a 2011 low hit earlier this week.
“Given that we are closing the year below $1.30, the path seems to be set,” wrote Dennis Gartman, an independent investor and author of the daily Gartman Letter.
He predicted the euro would drift toward $1.20 in early 2012 “as the resolve on the part of the political, fiscal and monetary authorities in Europe are put to test.”
The focus shifted to Spain on Friday after the country’s new government said the 2011 budget shortfall would be much larger than expected, and it announced tax hikes and wage freezes that could push Spain back to the center of the crisis.
The news drove the euro below 100 yen, though it later recovered some ground against the dollar, partly as traders took some last minute profits and closed their books on 2011.
“Since the market is overly bearish against the single currency, that does leave it susceptible to short covering bounces,” said Joe Manimbo, market analyst at Travelex Global Payments in Washington. “But overall I think these anti-euro bets are justified given the still-unresolved debt crisis and the poor growth prospects.”
The same baggage that dragged on the euro this year – worries about sovereign debt levels and a lack of policy solutions – could hammer it in 2012, Manimbo said, adding that it could slide to $1.25 or even lower in the first quarter.
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.
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Euro hits 10-year low versus yen