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Euro hits ten-year low versus yen on liquidity concerns Euro hits ten-year low versus yen on liquidity concerns
(40 minutes later)
The euro has fallen to a ten-year low against the Japanese yen amid renewed concerns over the eurozone crisis.The euro has fallen to a ten-year low against the Japanese yen amid renewed concerns over the eurozone crisis.
The euro was trading as low as 100.35 against the yen, its lowest level since July 2001.The euro was trading as low as 100.35 against the yen, its lowest level since July 2001.
The troubled single currency also hit a one-year low against the US dollar, hitting $1.2887. It was trading at 0.836 against the British pound.The troubled single currency also hit a one-year low against the US dollar, hitting $1.2887. It was trading at 0.836 against the British pound.
Banks have deposited record amounts overnight with the European Central Bank, raising fears of a credit crunch. The fall comes ahead of a new long term debt auction by the Italian government, closely watched by investors.
Bank deposits
This week, banks have deposited record amounts overnight with the European Central Bank (ECB), raising fears of a credit crunch.
One interpretation of this increased usage of the ECB's deposit facility is that it reflects nervousness among Europe's banks about lending the money to each other.One interpretation of this increased usage of the ECB's deposit facility is that it reflects nervousness among Europe's banks about lending the money to each other.
"Nobody sees anything on the horizon that could be mildly positive for the euro," said Rob Ryan of BNP Paribas in Singapore. "It could be a sign of market tension," said James Ashley a senior economist at the Royal Bank of Canada.
"But there are a number of other interpretations. We don't know which banks are depositing and in which size."
Some suggest the increased use of the facility is simply a response to recent intervention by the ECB.
The central bank provided European lenders with 489bn euros of its new three-year loans just before Christmas, of which banks used some 200bn euros to repay existing debts. The rest has gone into cash accounts, including the deposit facility.
Light trading
However falls in the single currency come during a period of relatively light trading on the markets due to the holiday period.
With relatively few buyers and sellers a few large trades can have a big impact on the price, as sellers struggle to find prospective buyers.
The fall comes despite Italy's successful debt auction on Wednesday, in which the country raised 9bn euros ($11.8bn, £7.56bn) of short term debt.
The interest on the six-month bills was 3.251%, down from 6.504% at the last similar auction in November.
Italy is set to announce a second auction of long term debt on Thursdaym, which economists say will provide a better indication of the country's ability to borrow.
"The scale of what is required over the next three or four months is vastly greater. [Wedenesday's auction] was a positive indication, but we shouldn't necessarily read too much in to that," said Mr Ashley.