Forex trading

With concerns continuing to mount about the refinancing of several countries within the euro zone, the currency has fallen to a decade-long low against the Japanese currency, the yen.

It was a miserable start to the year for the euro on the Electronic Braking Services (EBS) trading platform, which is used by market making banks to trade foreign exchange. On Monday (January 2, 2012), it continued its falls from the previous week and hit a low of 98.71 yen during early morning Asian trade – which is its lowest level since 2000.

At the heart of the falls is international concern surrounding high debt levels and a European debt crisis that has been ongoing for more than two years. Arne Lohmann Rasmussen, who is Danske Bank’s head of currency research in Copenhagen, told Reuters that these worries are prompting many to turn to the Japanese yen as a safer currency.

Furthermore, there are fears that the euro could even drop below its $1.1876 rate against the dollar that was reached during 2010 - unless leaders introduce a comprehensive policy response to address the ongoing debt crisis. Just last week Spain’s government warned that its budget deficit is likely to be larger than originally predicted.

There was at least a marginal recovery for the euro later in the day when it reached 99.60 yen. However, it remained consistently low against the dollar at $1.2947 – which is not even a cent ahead of the 2011 low level of $1.2858. Nevertheless, it is hoped that the euro’s woes could be limited by the high number of short euro positions – and the currency could yet rebound to above $1.30 compared to the dollar with the US economy expected to improve.

However, for investors, fears remain that the region may be on the verge of a recession and the pressure is now on the European Central Bank to reduce interest rates further during the first quarter of the year.

Ironically, the falls come shortly after the tenth anniversary of euro notes and coins being introduced, which was marked on January 1. Now policymakers are urging governments to tackle their debt crises, or 2012 is likely to be a considerably more difficult year than 2011.