The euro fights for its life, hits 9 month low

Throughout 2011 the euro has struggled against other international currencies. Due to calamitous events throughout this financial crisis, the euro is still up on the United States dollar for the year. Losing ground by 1% yesterday and settling at $1.325 dollars is not too far away from the $1.338 dollar value it posted at the end of 2010. Granted we are not talking about annual lows (at the beginning of January, 2011 the euro fell as far as $1.29 dollars), yesterday marked a 9-month low for the struggling currency.

Two factors contribute to the euros recent big losses. First, there is the old sovereign debt debacle plaguing the Eurozone. With Greece increasingly close to defaulting and increasing fear that European authorities do not know how to contain potential fallout from this crisis, Europe's black swan appears increasingly gray. As Citi strategist José Luis Martínez expressed so graphically, "Everything is progressing extremely slowly" in the upper European circles while "markets are moving along much more quickly."

The second factor came to light more recently. It entails how the Central European Bank has changed their plans and left the euro high and dry. For most of the year, the lender still led by Jean-Claude Trichet has acted as the main support of the euro currency with its decision to raise interest rates. It raised them in April and again in July in order to send them from 1% to 1.5%.

The ECB's goal was to keep raising rates, but in the beginning of September they got their arm twisted. Moreover, markets are considering that this Thursday they also intend to reduce them. This direction change has been a key influence on the falling dollar. The euro has plunged a total of 9% against the dollar since the end of August. Its weakness has affected other international currencies as well, particularly the Japanese yen. Yesterday the euro fell 1.3% against the yen, ending at 101.8 yen, which is the lowest it has been since 2001.

Crude prices also head downward

The euro's weakness also reflects investors' declining demand for risk, a reality intrinsic to not only the euro but also certain raw materials. Petroleum prices just saw a major correction. Yesterday, the price of a barrel of Brent crude fell by $102.1 dollars against the euro. WTI, which usually commands a higher price than Brent crude, declined to a yearly low of $78.70 dollars.

On the contrary, gold continues to provide a refuge for risk-averse investors as it rises in tandem alongside the dollar. The price per ounce for gold rebounded 1.8% to $1,654 dollars.