The euro had a second consecutive annual loss against the US dollar for the first time in a decade as rising yields on the region’s sovereign debt reflected speculation about defaults and stalling economic growth.
In its 13th year of existence, the 17-nation currency fell below ￥100 for the first time since 2001, as the region’s leaders bailed out Portugal, and Italy, with the world’s third-largest bond market, had its worst year since at least 1992.
The Swiss franc rose against a majority of its most-traded counterparts as Europe’s debt crisis spurred demand for safety. Japan’s currency’s average price was the strongest on record versus the greenback even after three interventions to weaken the yen by the nation’s central bank.
“It really has been all about the euro this year,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “It’s been a back-and-forth year for the euro and the focus has been on politicians and how the politicians would react.”
The euro declined 3.2 percent to US$1.2961 against the US dollar in New York. It reached a high last year of US$1.4940 on May 4 on speculation the European Central Bank (ECB) would raise interest rates and touched a low of US$1.2858 on Thursday as concern increased that the central bank may inject more currency into the financial system.
The shared currency tumbled 8.2 percent to ￥99.66. It fell below ￥100 for the first time since 2001 on Friday. The US dollar declined for a second year versus the Japanese currency, falling 5.2 percent to ￥76.91. It traded at an average ￥79.71 per US dollar in 2011, the weakest year since Bloomberg records began.
The US dollar’s gains during the final two quarters of the year belied Standard & Poor’s (S&P) stripping the US of its “AAA” credit rating in August.
The US currency’s portion of global foreign-exchange reserves rose to 61.7 percent in the period ended Sept. 30, the highest since the last three months of 2010. Reserves increased from 60.3 percent in the prior quarter, according to data from the IMF. The share of euros fell to 25.7 percent, the lowest since July through September in 2008.
While S&P had used the US dollar’s position as the world’s reserve currency to reaffirm its “AAA” rating in April, the company cited the weakening “effectiveness, stability and predictability of US policymaking and political institutions,” in its Aug. 5 downgrade of the US.
“The US downgrade, people didn’t see that coming,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group PLC’s RBS Securities unit in Stamford, Connecticut. “You get the sense that people are thinking that 2012 could be a repeat of a lot of factors from 2011. Europe’s still going to have problems.”
Investors turned to the franc and the yen in a search for refuge, causing the nation’s two central banks to intervene to stem currency gains.
Japan’s currency gained against all 16 of its major counterparts tracked by Bloomberg. It was also the best performer of 10 developed-nation currencies, according to the Bloomberg Correlation-Weighted Indexes, adding 5.5 percent. The US dollar rose 1.1 percent.
The Bank of Japan sold a record ￥9.09 trillion (US$120 billion) from Oct. 28 to Nov. 28 in its third intervention for last year as the currency reached a post World War II-high of ￥75.35 per US dollar on Oct. 31. On Aug. 4, it sold ￥4.5 trillion and on March 18 the Japanese officials appealed to the G7 nations, who jointly intervened in the foreign-exchange markets for the first time in more than a decade after a deadly March 11 earthquake and tsunami.
The euro was the worst performer according to the Bloomberg Correlation-Weighted Indexes, declining 2 percent as concern rising debt yields were unsustainable for European nations.
“With Italy and Spain becoming embroiled in the crisis, it’s led to a pretty sharp reversal in terms of the policy stance of the ECB and clearly that’s been very relevant for the euro,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co in New York. “We suspect that the ECB will continue with its very aggressive and easy monetary policy and liquidity policy stance and that’ll continue to weigh on the euro.”
NT DOLLAR
The New Taiwan dollar was little changed from Thursday at NT$30.290 against its US counterpart on Friday, compared with NT$30.296 the previous week. It advanced 0.3 percent last year.
The NT dollar rose to the year’s high against the US dollar on May 5 when it hit NT$28.632 before falling back down.
Additional reporting by staff writer
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