The euro jumped to its highest in three weeks in thin Asian trade on Friday, but was on track for a losing year on expectations that US President-elect Donald Trump’s policies will boost inflation and prompt the US Federal Reserve to hike interest rates more frequently.
On the last trading day of 2016, the dollar index, which tracks the greenback against a basket of six major rivals, slipped 0.3 per cent to 102.40, below its high of the year of 103.65 touched on December 20, which was its highest level since January 2003. But it was still poised to gain 3.8 per cent for the year.
The euro was last up 0.4 per cent at $1.0527 after briefly spiking to $1.0700, its highest since December 8. It was down 3 per cent against the dollar for the year.
The euro also soared against the Japanese currency. It was up 0.6 per cent at 122.99 yen after touching 123.87, its highest since December 15, but remained on track to shed 5.8 per cent for the year.
“It’s a really thin market today, and suddenly offers disappeared and short-term players pushed the euro higher and took out stops. That’s all,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The dollar clawed back lost ground against the yen to stand at 116.77 yen after earlier touching 116.05, its lowest since December 14.
The dollar was down 2.9 per cent for the year against the yen, but considerably pared its losses after the November 8 U.S. presidential election.
Trump’s victory helped push US Treasury yields to multi-year highs on expectations that his administration would embark on inflation-stoking stimulus policies, and the US central bank would respond with more interest rate increases.
On Thursday, though, a strong US 7-year note auction on the last full trading day of the year pushed down yields across the curve, undermining the dollar’s appeal.
The US bond market will close at 2 p.m. Friday in advance of the New Year’s holiday weekend. Japanese markets will be closed on Monday and Tuesday.
Sterling rose 0.1 per cent to $1.2278, moving away from a two-month low of $1.2201 plumbed on Wednesday. It was down 16.6 per cent in a year marked by Britain’s June vote to exit the European Union.
China’s yuan looked set to end the year down around 7 per cent against the resurgent dollar, making it the worst performing Asian currency of the year.
China will change the way it calculates a key yuan index in the new year, nearly doubling the number of foreign currencies in a basket that is used to set the yuan’s value, its foreign exchange market operator had said late on Thursday.
China has been promoting use of the index partly to divert attention from the yuan’s value against the dollar which has fallen near its lowest in 8-1/2 years.
By adding another 11 currencies, China will reduce the dollar’s weighting in the basket to 22.4 per cent from 26.4 per cent, according to currency strategists at Brown Brothers Harriman.
“Although the yuan is at an eight-year low against thedollar, it is near a four-month high against the current CFETSbasket,” they said.
Analysts said the change was in line with the central bank’s intention to discourage investors from exclusively tracking the yuan’s fluctuations against the dollar, but it would have limited impact on the Chinese currency, which is expected to weaken further against the dollar in 2017.