The euro’s foreign exchange rate fell to an 11 year low against the Japanese yen, before paring declines, on concern that the European debt crisis will hamper economic growth and destabilise financial markets as 2012 begins.
The single currency weakened against the dollar as a report confirmed European manufacturing shrank for a fifth straight month in December. German Chancellor Angela Merkel said in a New Year’s speech she expects turbulence this year and will do “everything” to save the euro and end the region’s debt crisis.
“We remain negative about the euro,” said Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva. “Lack of growth in peripheral nations will be a major issue there this year, and I don’t think what leaders have proposed will be enough to ring-fence the economic problem. Concern about debt sustainability in peripheral countries will escalate.”
The euro fell to as low as 98.66 yen, the least since December 2000, before trading 0.1 percent lower at 99.59 yen at 11:36 a.m. London time. It weakened 0.1 percent to $1.2947. The 17-nation currency depreciated the most against the Canadian dollar, slipping 0.3 percent.
The euro posted its first back-to-back annual declines against the dollar in a decade last year. It was also the worst performer among 10 developed-nation currencies in 2011, sliding 2.1 percent.
The euro pared losses as the European Central Bank said today overnight deposits from financial institutions fell, after reaching an all time high last week.
Euro area banks parked 413.9 billion euros with the Frankfurt-based ECB, down from 445.7 billion euros the previous day. Deposits reached 452 billion euros on Dec. 27, the most since the euro’s introduction in 1999, a sign banks were reluctant to lend as concern about counter-party risk deepened.
The ECB has reduced its benchmark rate to 1 percent, matching a record low, and flooded banks with cheap loans in an effort to keep credit flowing to the economy. It has resisted pressure to step up its bond purchases, putting the emphasis on governments to solve the European debt crisis with fiscal reforms.