Euro dips, sentiment sours despite French auction

European single currency hits 15-month low versus dollar and 11-year trough versus yen
France on Thursday managed to sell nearly €8bn in longer-dated government debt to investors (AFP/Getty Images)
By Reuters
Thu 05 Jan 2012 04:25 PM

The euro tumbled to a 15-month low against the dollar and an 11-year low versus the yen on Thursday as signs of weakness in euro zone banks highlighted the extent to which they are suffering from the deepening debt crisis.

Hedge funds and macro funds dumped the euro despite solid demand at a French auction of long-dated government bonds, sending it down to $1.2830, its weakest since September 2010.

France on Thursday managed to sell nearly €8bn in longer-dated government debt to investors who were attracted to the bonds due to their higher coupons following a rise in yields.

The euro's reaction was a repeat of selling seen the previous day, when investors dumped the currency despite reasonable demand seen at an auction of German bonds, and analysts said this was a sign of strong negative sentiment for the euro.

"It was the same reaction as the German auction yesterday... People are just looking for an excuse to sell euro/dollar, after it rose on the first trading day of the year," said Adam Myers, currency strategist at Credit Agricole CIB.

Investors shunned the currency as a heavily discounted rights issue from Unicredit, Italy's largest bank, underscored its funding problems in the country.

Broad weakness in the euro, which fell to 98.56 yen, its lowest since 2000, while suffering against the Australian and Canadian dollars, has knocked the single currency to its lowest against a trade-weighted basket in 1.5 years, according to the European Central Bank's index.

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