NEW YORK: The euro plummeted to its lowest level against the dollar since September 2010 and hit an 11-year trough versus the yen on Thursday as fears about euro zone sovereign funding and concerns about the region's banks made investors shun the shared currency.
Data showing US private sector hiring surged in December and that claims for unemployment benefits fell further highlighted the growing disparity between the world's largest economy and Europe, which many say is either in or on the brink of a recession.
The euro's reaction to a French debt auction was a repeat of selling seen on Wednesday, when investors dumped the currency despite reasonable demand at an auction of German bonds.
Analysts said next week's Italian and Spanish government bond sales, seen as those countries' first major refinancing tests of the year, will likely keep the market on edge and the euro under pressure.
"There are several reasons why Spain may ultimately be more worrisome than Italy," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
"Investors' focus has been on the challenges that Italy's largest banks face in raising capital. They have yet to turn the attention to Spanish banks' capital needs."
A heavily discounted rights issue from Unicredit, Italy's largest bank, had underscored funding problems in the euro zone's third largest economy and also made investors reluctant to buy the euro.
The euro fell as low as $1.2775 and was last at $1.2790, down 1.2 percent. The euro has lost around three US cents in the last two days.
"There is no shortage of reasons to sell the euro today, including a subdued French bond auction, ongoing uncertainty over international financial aid to Hungary, concerns over Spanish banks and soft economic data," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
"We suspect the main factor slowing the euro's decline at the moment is the speculative short positioning which reached record levels last week."
Along with a slew of negative factors encompassing the euro zone, the US job market data firmly favored the greenback. The dollar rose against a currency basket to its highest level in a year. The dollar gained 0.6 percent against the yen to 77.16 yen, after trading at a near one-week high of 77.19 yen.
The latest data from the European Central Bank suggested banks were hoarding cash rather than lending to each other despite the ECB providing almost half a trillion euros of ultra-cheap three-year loans last month.
Analysts said further signs of trouble in the banking sector could trigger more weakness in the shared currency.
The euro is expected to be the most volatile major currency in January as the bloc's debt crisis persists, keeping alive fears of another credit crunch and with the AAA credit rating of some of its top members in the balance, according to a Reuters poll.
Broad weakness in the euro also saw it fall to its lowest level against the yen since 2000, hitting 98.45 yen, according to Reuters data. It also suffered against the Australian and Canadian dollars.
DailyFX reported its client trading shows euro dollar long positions are 11.1 percent higher than Wednesday and 15.5 percent stronger since last week. Short positions are 8.9 percent lower than Wednesday and 17.4 percent weaker since last week. The ratio of long to short positions in the euro/dollar stands at 1.53 as nearly 60 percent of traders are long.
The firm's Speculative Sentiment Index is a contrarian indicator and signals more euro/dollar losses, DailyFX said.
The euro traded at 1.2178 Swiss francs, little changed on the day, while the dollar was up 1.2 percent at 0.9526 franc, its highest since mid December.
The chairman of the Swiss National Bank, Philipp Hildebrand, is battling for his future and has faced calls from some right-wing politicians for his resignation over a currency trade made by his wife three weeks before he oversaw moves to impose a cap on the Swiss franc.
In the United States, more insight into the state of the labor market will emerge on Friday when the Labor Department reports December non-farm payrolls data, a key monthly mover of financial markets.
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