New York (Bloomberg) The dollar posted its first monthly gain since June versus the currencies of major US trading partners as the Federal Reserve moved closer to withdrawing stimulus measures that helped cause the greenback to fall 4.2 per cent for the year.
The dollar advanced to a three-month high against the yen and rallied versus the euro after the Fed said at the conclusion of its Dec-ember 16 meeting that job losses are "abating." The greenback pared its annual decrease against the Australian dollar and Norwegian crown as a surge in Treasury yields made the US currency less attractive as a funding vehicle for the purchase of higher-yielding assets.
"We are seeing the dollar recover probably into the first quarter of (this) year," said Thanos Papasavvas, who helps manage more than $5 billion (Dh18.36 billion) in London, in an interview on Bloomberg Radio. "We would expect the unemployment rate to start to stabilise."
Dominance diminished
The trade-weighted Dollar Index, which the ICE futures exchange uses to track the greenback against currencies including the euro, yen and pound, increased 4 per cent in December to 77.860 Thursday. It was the first monthly advance in six months and the biggest gain since January 2009.
The index finished the decade down 24 per cent as US dominance of the global economy diminished and emerging markets grew. The introduction of the euro in January 1999 created an alternative to the dollar as a global reserve currency.
The US currency's share of foreign reserves held by global central banks dropped to 61.6 per cent during the quarter ended September 30, the lowest on record, from 71 per cent a decade ago, the International Monetary Fund reported on December 30. The euro's share rose to 27.7 per cent, from 17.9 per cent.
"You might get periodic episodes of a little bit of dollar strength," said Tom Fitzpatrick, chief technical analyst at Citigroup Inc in New York, in an interview on Bloomberg Radio. "But we really don't feel any of the underlying parameters for dollar weakness have changed that much."
Forecast
The dollar appreciated 4.8 per cent to $1.4321 per euro on December 31, from $1.5005 at the end of November, paring its loss in 2009 to 2.5 per cent. The US currency advanced 7.7 per cent to 93.02 yen, from 86.41, and gained 2.6 per cent for the year. It touched 93.15 yesterday, the highest level since September 7. The euro increased 2.7 per cent to 133.20 yen in December and advanced 5.1 per cent in 2009.
Barclays Plc, the world's third-largest currency trader, raised its three-month forecast for the dollar against the euro on December 10 to $1.45 from $1.52 and its six-month outlook to $1.40 from $1.45.
The median forecast of 43 economists surveyed by Bloomberg News is for the dollar to trade at $1.51 by the end of March and $1.49 by June 30. The dollar will trade at 90 yen by the end of March and 93 in six months, according to economists.
The yen was the only major currency to fall against the dollar for the year, weakening on speculation the Fed will phase out stimulus measures while the Bank of Japan steps up efforts to fight deflation.
The yield premium on 10-year Treasury notes over similar-maturity Japanese bonds rose yesterday to the highest level in more than two years, making US assets more attractive than Japan's securities.