The US dollar on Thursday rose against a basket of world currencies, but ended its worst year since 2017 as expectations for further fiscal aid and easy monetary policy from the US Federal Reserve prompted investors to shun the greenback.
The prospect of a brighter year has lessened the lure of the safe-haven greenback, while burnishing the attraction of assets overseas, especially in emerging markets.
News that UK firms would be allowed another three-month transition period for swaps trading on EU platforms, averting the threat of disruptions next week, pressured the US dollar further by sending the sterling to the highest since May 2018.
Photo: EPA-EFE
This week’s data also showed the US trade account hemorrhaging US dollars as the goods deficit hit a record US$84.8 billion in November last year.
The current account gap also widened to a 12-year high in the third quarter.
“I expect the dollar to depreciate further over the next few years as the Fed keeps rates at zero whilst maintaining its bloated balance sheet,” Kevin Boscher, chief investment officer at asset manager Ravenscroft, told clients.
“The magnitude of the twin-deficits dwarfs any other major economy,” Boscher said.
The US dollar index lost 0.01 percent to 89.93.
The greenback’s weakness boosted the euro above US$1.23, the highest since April 2018, with a gain of almost 10 percent for the year.
In Taipei, the New Taiwan dollar closed down NT$0.001 against the US dollar at NT$28.508 on Thursday in a holiday-shortened week, up 0.12 percent from NT$28.541 on Friday last week
Against the yuan, the US dollar breached 6.49 yuan for the first time since mid-2018, although Chinese banks were later reported to be buying US dollars to limit the drop.
Sterling rose as far as US$1.3686, but closed at US$1.3667.
On sovereign bonds, borrowing costs inched lower in thin liquidity, with this year’s top performer, Italy, seeing 10-year yields slip one basis point to around 0.51 percent.
They started the year at almost 1.5 percent, only to drop steadily after the European Central Bank’s stimulus explosion in response to the COVID-19 pandemic.
Spanish and Portuguese 10-year yields hovered above 0 percent, down about 50 basis points on the year. Even German yields, already negative in January last year, fell by about 30 basis points.
After bumper returns last year — 4 percent to 5 percent on 10-year German, Spanish and Portuguese debt, and more than 8 percent on their Italian and US equivalents — yields could grind gradually higher next year.
However, the improving growth picture should be broadly offset by central bank buying.
“Financial repression is very much intact and bond yields will be kept low across the maturity range in order to force investors further up the risk scale in a search for yield,” Boscher added.
Additional reporting by staff writer
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