The euro ends the year sinking even lower

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The Italian bond auction yesterday failed to reach its target yesterday. The Italian treasury had been hoping to build on the success of its bill auction the previous day to refinance an €8.5bn mixture of maturing debt, the longest being for 10 years. In the end it managed to offload €7bn, with the 10-year yield coming in a whisker under 7%. The 6.98% achieved was better than 7.56% Italy had to pay for 10-year money at the end of November but the low coverage and the still-uncomfortably-high yield did not bode well for the €450bn it will need to borrow in the next 12 months. The European Central Bank (ECB) reportedly stepped in to prop up Italian bonds following an auction that revived fears Italy may be unable to refinance its huge €1.9 trillion (£1.5tn) borrowings.

The euro sank to a 15-month low against the dollar. Yesterday morning, after the auction, the single currency fell to $1.2866, its lowest level since September 2010. It later recovered to trade above $1.29. Against the yen, it dropped to a ten-year low of ¥100.06, but then crept up to ¥100.45, and the euro is ending the year with another unwelcome milestone – it just hit a record low against the Australian dollar (€1=AUS$1.2718)

The Italian prime minister did not give away much about the measures his government was working on to stimulate growth in the economy. But he did say that by the end of January they planned to announce two new packages. Markets have also their eyes in Spain where the new government of Mariano Rajoy is about to announce the new austerity program for the country.

IHS Global Insight, one of the world’s largest economic organisation, released their forecasts for 2012 this morning. They have predicted Eurozone GDP to contract by around 0.7% overall in 2012 and the ECB to cut interest rather further.

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The euro ends the year sinking even lower

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