(Updates prices, adds CFTC (Taiwan OTC: 1586.TWO – news) data)
* Euro expected to continue slide vs dollar in 2012
* Euro falls below 100 yen for first time in decade
* Chinese yuan ends year at record high vs dollar
NEW YORK (Frankfurt: A0DKRK – news) , Dec 30 (Reuters) – 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.
The euro fell 0.9 percent to 99.77 yen and looked set to end
the year down more than 8 percent against Japan (EUREX: FMJP.EX – news) ‘s currency.
It held up a bit better against the dollar, shedding 3.1
percent 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 $1.4939 by
May, then began a steady descent as a euro zone debt crisis that
began in smaller countries such as Greece and Ireland (Xetra: A0Q8L3 – news) spread to
the larger core economies of Italy and Spain.
On Friday, the euro traded at $1.2940, less than a
cent above its 2011 low hit earlier this week. The dollar lost
0.9 percent to 76.95 yen and ended the year down 5.2 percent
against Japan’s currency.
“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 (Chicago Options: ^REURUSD – news) 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.
It may even be due for a modest bounce in early Janauary if
only because positions are so heavily stacked against it.
Commodity Futures Trading Commision data on Friday
showed bets against the euro swelled to a record in the latest
week.
“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.”
Elsewhere, sterling rose 0.8 percent to $1.5530,
ending the year little changed agianst the dollar.
DOLLAR UP VS MAJORS, YUAN HITS RECORD
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.
The euro’s troubles have benefited the dollar and yen, both
of which tend to attract safe-haven flows during times of
trouble. Against a basket of major currencies, the dollar was on
track to finish the year up 1.3 percent, its second consecutive
annual rise.
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 lending and growth.
If the Fed were to flood the financial system with more
money through asset purchases or to state plans to extend its
zero interest-rate policy beyond mid-2013, the dollar could
struggle.
Some also said any decline in Chinese demand for U.S. assets
could push the dollar lower. China has been a steady dollar
buyer in order to limit gains its own currency, the yuan.
Chinese authorities loosened their grip a bit on the yuan
this year, letting it appreciate by 4.7 percent against the
dollar. It closed at a record high against the greenback on
Friday.
What China does next year may be “more important than
anything that is happening in Europe, because for 17 years the
Chinese have supported the dollar and the Treasury market,” said
Russell Napier, strategist at CSLA Asia Pacific Markets, a Hong
Kong-based brokerage.
The euro, however, should remain the center of attention, at
least in the first quarter of the year.
Italy, the euro zone’s third-largest economy, remains at the
center of the debt crisis, and its borrowing needs could
overwhelm the bloc’s financial defenses if it were forced to
seek an international bailout.
Ten-year Italian yields are above 7 percent, considered by
markets as unsustainable, and the country needs to raise 450
billion euros in debt markets in 2012. Government issuance of
new euro zone debt will be scrutinized for any sign investors
are shunning the currency bloc.
(Editing by Kenneth Barry)
