The euro hit a four and a half month high today as optimism over US-China trade relations and the global growth outlook knocked demand for dollars.
Thin end-of-year volumes exacerbated the broad weakness in the greenback, which has seen it dip for three sessions in a row and on Friday suffer its biggest one-day fall since June.
Investor sentiment, which has discouraged buying of the dollar as a safe haven, was boosted during Asian hours when China’s central bank unveiled a measure to help lower borrowing costs and boost flagging economic growth.
Investors also cheered a report forecasting that China’s 2019 retail sales would be up 8%.
The euro climbed as high as $1.1211 today, its strongest level since August 13.
Bleak European economic data had prompted hedge funds to bet on a weaker euro during 2019, but some signs that the euro zone economy has turned a corner have lifted the EU single currency in recent weeks.
The dollar index, which measures the currency against a basket of rivals, weakened 0.1% to 96.821. With Friday’s loss, the index’s gains for the year have shrunk to around 0.6%.
Sterling was also a beneficiary, rising 0.2% to $1.3106.
Against the euro, it was down 0.1% at 85.51 pence – concerns that Britain is headed for a disruptive “hard Brexit” at the end of 2020 have hurt the pound since the middle of December.
Marshall Gittler, chief strategist at ACLS Global, said it was noticeable how little currencies had moved during 2019, with very low volatility and narrow trading ranges, which he put down to “economic and monetary policy convergence”.
“I expect less of both in 2020, for two reasons,” he said, noting the expected end of the Sino-US trade war, which should lead to broader economic recovery across the world.
The second reason, Gittler said, was that inflation seemed to have bottomed out and “conceivably some countries could start thinking about hiking rates, which would encourage monetary policy divergence”.
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