Sun, Jan 01, 2006 - Page 10 News List

Dollar pulls out of three-year decline against major rivals


The US dollar gained modestly on currency markets on Friday, capping a year that saw it gain about 15 percent against the euro and the yen and pulled the greenback out of a three-year decline.

The dollar index, which compares the US currency to a handful of the world's major currencies, posted a 13 percent gain for last year, an annual rise not replicated since the late 1990s.

Late in New York, the euro dipped to US$1.1839 from US$1.1844 late on Thursday.

The dollar was down a touch against the Japanese currency, at ?117.75 from ?117.81 on Thursday, but advanced against other European units.

The euro was worth about US$1.36 this time last year, the common European currency's highest level against the greenback since its launch in 1999.

"A sudden euro-dollar plunge through US$1.18 has surprised a market that has been focused on crosses [of other currencies] and looking ahead to early exits for the long holiday weekend," currency analysts at Ried Thunberg ICAP said.

"Given the limited liquidity, the price action needs to be taken with a grain of salt," they added.

Most major financial centers will be closed tomorrow for the New Year's holiday.

With Japanese and Asian markets closing early, and many market participants away on a festive break, trade flows were thin.

Higher US borrowing costs last year handed the euro a loss of about 11 percent in value against the dollar during last year.

Earlier last month, the US Federal Reserve lifted the benchmark US interest rate by a quarter point to 4.25 percent.

The consensus forecast of analysts is for US borrowing costs to peak this year at 4.75 percent, followed by a pause.

The European Central Bank, meanwhile, was expected to raise interest rates again this year, after increasing its key rate by a quarter of a point to 2.25 percent in November -- the first increase in more than five years.

The dollar's rebound last year followed three years during which the US unit struggled owing to concerns about gaping shortfalls in the US current account and trade balances.

Most pundits were wrong in their predictions for continued dollar declines last year, but think the trade-deficit issues could return to the fore this year.

Analysts at Action Economics said some dollar gains on Friday could be linked to a final round of profit repatriation by US companies taking advantage of a temporary tax bonus under the Homeland Investment Act.

The US dollar stood at 1.3132 Swiss francs late in New York, against SF1.3140 late Thursday.

The pound was changing hands at US$1.7228, from US$1.7247.

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