By Kate Duguid and Saqib Iqbal Ahmed
NEW YORK (Reuters) – The U.S. dollar index recorded its smallest-ever annual move in 2019, up just 0.24% for the year after a drop in December reversed early gains as trade hopes and investor confidence diminished demand for the safe-haven asset.
(GRAPHIC: Dollar unchanged – https://fingfx.thomsonreuters.com/gfx/mkt/13/470/470/Pasted%20Image.jpg)
The pound <GBP=>, the euro <EUR=> and a clutch of trade-sensitive currencies rallied as the dollar slid to a six-month low on Tuesday as investor optimism about global growth prospects and the Phase 1 U.S.-China trade deal spurred a risk-on move.
U.S. President Donald Trump said on Tuesday that the first phase of an American trade deal with China would be signed on Jan. 15 at the White House, though considerable confusion remains about the details of the agreement.
The dollar index <.DXY> was last down 0.33% to 96.418, its fourth consecutive session in the red and its weakest level since July 1. The Phase 1 trade agreement reached earlier in December has pulled the dollar down 1.89% in the last month.
The dollar had recorded a strong 2019 before December, owing to the outperformance of the U.S. economy and a long period of uncertainty in the negotiations between Washington and Beijing.
“Weakness in the U.S. dollar toward the end of this year has coincided with the renewed expansion of the Fed’s balance sheet and the paring back of pessimism over the outlook for global growth,” MUFG analysts said.
On the last trading day of the year, the dollar was up just 0.24% for 2019, compared with 4.4% in 2018. At the end of November, it was up 2.18% for the year.
The shift also reflects investor bets that the dollar will weaken further in 2020.
“Everybody has been wanting to short the dollar. It has been the most frustrating trade of the year. I think for the most part, there’s not a lot of resistance going back into that trade. If we look into the top 2020 calls for FX, it’s going to be short the dollar,” said Marvin Loh, senior global macro strategist at State Street Global Markets.
Investors’ appetite for risk drove the euro to $1.124, a five-month high. It was last trading 0.22% higher at $1.122.
Sterling hit a two-week high against the dollar, although the possibility of a “no-deal” Brexit at the end of 2020 is still weighing on the pound.
The risk-on move sent the Australian dollar <AUD=>, Chinese yuan <CNH=> and Scandinavian crowns to multi-month or multi-week highs against the greenback.
(Reporting by Kate Duguid, Saqib Iqbal Ahmed and Olga Cotaga; Editing by Steve Orlofsky and Dan Grebler)