The euro halted a two-year losing streak as European Central Bank (ECB) President Mario Draghi’s commitment to backstop the shared currency stymied a debt-contagion threat.
In its 13th year, the 17-nation currency rebounded versus the greenback after sliding almost 10 percent during the prior two years. The yen extended the largest loss versus the US dollar among major currencies as Japanese Prime Minister Shinzo Abe put pressure on the central bank to increase monetary stimulus. The US currency was little changed as US policymakers struggled with deficit control and the Federal Reserve extended its record-low interest rate target and bond-buying plans.
“The ECB has gone a long way to suppress the forces of the crisis and contain systemic risk,” said Lena Komileva, London-based chief economist at G+ Economics. “This is the primary reason the euro has been as strong as it has. Initially this year, the market underestimated the effectiveness of the ECB.’
The euro was up 2 percent for the year to US$1.3216 on Friday in New York, after dropping 3.2 percent last year and 6.5 percent in 2010. It remained below its life-time peak of US$1.6038 reached on July 15, 2008, traded as high as US$1.3487 on Feb. 24 and as low as US$1.2043 on July 24.
The yen is down 14 percent this year, posting the biggest depreciation among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
“The yen will weaken further given the election of Abe,” said John Taylor, chairman and founder of FX Concepts LLC, said in a telephone interview from his New York office on Dec. 20. “The yen weak versus the US dollar into the first week or so of February,” reaching ￥90 per US dollar before reversing course.
The median forecast of 50 strategists and economists surveyed by Bloomberg predict the yen will trade at ￥87 per US dollar at the end of next year.
The pound slipped 0.4 percent this week to ￡0.8183 per euro. It dropped to ￡0.8225 on Friday, the weakest level since April 18. It was little changed at US$1.6161. If sterling closes stronger than ￡0.8334 per euro tomorrow, this will be the fourth year of gains, the longest winning streak since the introduction of the single currency in 1999.
The pound has risen 1.5 percent this year, according to Bloomberg Correlation-Weighted Indexes.