Euro knocked by debt worries before France auction

LONDON: The euro hit a 15-month low against the dollar and an 11-year low versus the yen on Thursday as concerns about the euro zone's deepening debt crisis ran high before a French debt auction later in the day.

Traders said selling by hedge funds and macro funds knocked the euro back 0.5 percent on the day to $1.2847, its weakest since September 2010. Against the yen, it fell to 98.67 yen, its lowest since 2000.

The higher yields that investors demand to hold French debt rather than benchmark German bunds will help France sell 10-year bonds at an auction on Thursday, but analysts said the euro was unlikely to gain much traction even if the Paris sale goes off without a hitch.

Investors are mindful that France risks losing its prized AAA rating in the near term, while the view that EU policymakers are making little progress towards a lasting solution to the debt crisis will keep the euro under selling pressure.

"I don't think today's auction will have a dramatic effect (on the euro) unless the sale is disastrous," said Johan Javeus, chief strategist at SEB in Stockholm.

"I (also) don't think that a fairly successful auction will be enough to trigger a round of risk appetite."

EURO BROADLY PRESSURED

The dollar rose 0.4 percent against a currency basket, with its index trading at 80.445. Sluggishness in the euro helped keep the US currency near levels touched last week that are its strongest in roughly a year.

Against the yen, the single currency fell 0.4 percent to 98.86 yen, closing in on an 11-year low of 98.71 yen on Monday.

The euro bought A$1.2508 versus its Australian counterpart, up 0.3 percent on the day and off a session low of A$1.2478, but not far from an all-time trough of A$1.2469 hit on Wednesday.

It fell to a one-year low of C$1.3070 against the Canadian dollar.

Broad weakness in the euro against a slew of G10 currencies comes after data showed speculators cranked up bets to sell the single currency to their highest on record in the week ending Dec. 27. Some in the market say that has set up conditions for a possible "short squeeze", where the euro proves resilient enough to prompt players to give up on those negative trades.

"While the attraction of short euro, long G10 smalls is undeniable on a fundamental basis, there is a growing view that these trades are becoming crowded," Citi analysts said in a note.

The euro traded at 1.2188 Swiss francs, little changed on the day.

Investors awaited a news conference later in the day from Swiss National Bank chief Philipp Hildebrand aimed at calming the furore over a dollar/franc trade his wife made shortly before the central bank imposed a strict cap on franc strength.

Analysts said drastic action by the SNB -- including the possibility of Hildebrand's resignation -- could trigger initial franc selling, but many expected any lasting impact to be limited as the issue was unlikely to change the central bank's policy of reigning in the strong currency.