Euro stops two-year loss on Mario Draghi commitment on debt crisis

The euro halted a two-year losing streak as European Central Bank president Mario Draghi's commitment to backstop the shared currency stymied a debt-contagion threat.

In its 14th year, the 17-nation currency rebounded against the US dollar after sliding almost 10 per cent during the prior two years. The yen extended the largest loss against the dollar among major currencies as Japanese Prime Minister Shinzo Abe put pressure on the central bank to increase monetary stimulus. The greenback was little changed as US policymakers struggled with deficit control and the Federal Reserve extended its record-low interest rate target and bond-buying plans.

"The ECB has gone a long way to suppress the forces of the crisis and contain systemic risk," said Lena Komileva, London-based chief economist at G+ Economics. "This is the primary reason the euro has been as strong as it has. Initially this year, the market underestimated the effectiveness of the ECB."

The euro was up 2 per cent for the year to US$1.3216 on December 28 in New York, after dropping 3.2 per cent last year and 6.5 per cent in 2010. It remained below its lifetime peak of US$1.6038 on July 15, 2008, traded as high as US$1.3487 on February 24 and as low as US$1.2043 on July 24.

The yen was down 10.5 per cent to 85.96 per dollar. Japan's currency has weakened 12.3 per cent to 113.61 per euro. The Brazilian real has lost 8.8 per cent against the dollar in 2012, the second-biggest loser after the yen. The South Korean won leads all 16 of the dollar's biggest peers with a gain of 7.7 per cent.

Draghi said on July 26 that he would do whatever it took to ensure the resilience of the euro and announced in September a bond-buying plan, which pledges unlimited support for countries that sign up to economic reforms as part of a bailout from Europe's rescue fund. The Outright Monetary Transactions programme caused bond yields of the region's most-indebted nations to decline.