Euro in decline, but the pound is the biggest loser of 2008

In weak trading on the last day of the year, the euro stabilized on international currency markets on Wednesday, but despite this, it will record its first annual decline against the dollar since 2005, when the financial crisis prompted investors to turn back to the American currency.

The euro strengthened against the dollar by only 0.1 percent by noon, to $1.4064. It is on track to end the year down about 3.4 percent against the dollar. However, towards the end of the year, it recorded a recovery, having jumped more than 10 percent against the greenback just in December. Against the yen, the euro is recording an annual loss of 22 percent, trading at 127.26 yen on Wednesday.

The dollar remained unchanged against the yen on Wednesday, at 90.33 yen, but has weakened 19 percent on an annual basis against the Japanese currency. It is expected that due to concerns about the state of the American economy and issues surrounding the financing of a massive fiscal stimulus package, given the large balance of payments deficit, the dollar will enter the new year under pressure. There are no signs of an end to the release of weak U.S. economic data, after Tuesday’s data indicated record-low consumer confidence and real estate prices. Markets are now awaiting the release of the latest report on unemployment claims during the day, which is expected to show a significant jump.

"The end of the dollar weakening trend is still far off," assesses David Powell, G10 currency strategist at Bank of America. "The euro will continue to strengthen against the dollar due to the ongoing easing of U.S. monetary policy through quantitative easing of liquidity," he adds. The U.S. Federal Reserve has cut interest rates to nearly zero and announced its readiness to take less conventional measures to strengthen liquidity to stimulate the faltering economy.

The biggest loser among the leading world currencies in 2008 is the pound. On an annual basis against the dollar, it weakened 27 percent, to $1.4435 on Wednesday, close to the lowest level reached the day before in 6.5 years. The euro strengthened 33 percent against the pound on an annual basis, nearly equaling the British currency for the first time. On Wednesday, it was at 97.47 pence.

The winner of the year is the yen, which surged strongly on the wings of the financial crisis that diverted investors from currency carry trade tactics, in which they borrowed in yen, a low-yield currency, to purchase assets denominated in high-yield currencies.

"As the old year comes to a close, a review of the world currency rankings for 2008 shows that among G10 countries, the gold medal for the best currency of 2008 goes to the yen," concludes Stuart Bennett, senior currency strategist at Calyon.