Dollar closes rocky year with euro gain, yen loss
The latest decline extends Thursday’s slide, though trading is slight on the last day of the year. Dollar index is up 1.5% in 2010.
The U.S. dollar fell on Friday, extending the previous day’s slide as strong U.S. economic data encouraged trade out of the greenback and into higher-yielding currencies.
The dollar index (BOARD:DXY) , which measures the currency against a basket of six rivals, eased to 79.02 from 79.51 in late Thursday trading in North America. The index is up roughly 1.5% for the year.
“The U.S. dollar is softer on the last trading day of the year with position squaring likely the main driver,” said analysts at Brown Brothers Harriman in a note.
While many of the other major pairs were in tight ranges in subdued holiday trading, the euro (U.S.:EURUSD) rose solidly to $1.3369, up from $1.3290 late Thursday. Despite the rise, the euro is still down about 7% versus the dollar in 2010, hurt in particular by worries about eurozone countries’ balance sheets.
One of the latest pieces of news that may affect the European currency was a New Year’s message from German Chancellor Angela Merkel, calling for actions to solidify the euro’s standing.
“Europe has faced a big test in recent months. We have to strengthen the euro. It is not just about our money. The euro is much more than a currency,” Merkel was quoted as saying in an Agence France-Presse report.
The U.S. unit fell 0.3% against the Japanese yen (U.S.:USDYEN) , hitting ¥81.24, and is down about 12.7% this year. Both the yen and euro are significant components of the dollar index.
2011 demand
With ongoing concerns about sovereign debt, the dollar should remain supported in 2011, especially amid recent evidence that it remains a favored reserve currency for developing countries, some analysts say.
On Thursday, the International Monetary Fund released a report showing that the dollar share of developing countries’ new official reserves rose in the third quarter.
“The dollar’s continued hold on reserves strikes us as remarkable in light of some pretty stiff negatives: the coming of [further easing measures], concerns about the U.S. fiscal situation, and media speculation of ‘currency wars,’ dollar ‘devaluation,’ and even dollar ‘debasement’,” Jeffrey Young, an analyst at Barclays Capital, wrote in a research note.
“None of these factors overcame the need to rebuild dollar stocks depleted during the crisis, the need to slow local currency appreciation against the dollar, and the general tendency to buy more dollars when it cheapens,” Young added.
The British pound (U.S.:GBPUSD) on Friday rose 1.1% against the dollar to $1.5429, though it’s still down about 3.4% on the year. As with the euro, the pound’s falling value reflects concerns about national finances, worries that the coalition government is attempting to address by introducing severe austerity measures.
The dollar also fell against the Swiss franc (U.S.:USDSWF) , down to 0.9338 francs, after having hit a record low of 0.9351 francs on Thursday. The dollar has lost nearly 10% against the franc in 2010. The euro and pound have lost nearly 16% and 13% against the franc this year.
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