FOREX-Dollar sucked into downward spiral by U.S. twin deficits

* Euro clears $1.2300 to be up 10% for year
* Dollar index at lowest since April 2018
* Sterling climbs as lawmakers approve Brexit deal

By Wayne Cole
SYDNEY, Dec 31 (Reuters) - The dollar was ending 2020 in a
downward spiral on Thursday with investors wagering a global
economic recovery will suck money into riskier assets even as
the yawning U.S. twin deficits argue for an ever cheaper
currency.
The euro steamed ahead to $1.2305 EUR= , having hit its
highest since April 2018 with a gain of almost 10% for the year.
The next stops for the bull train are $1.2413 and $1.2476, on
the way to the 2018 peak at $1.2555.
The dollar also dropped to 103.16 yen JPY= , but stopped
just short of the December low at 102.86. Trade was thin in Asia
with Japan and South Korea on holiday.
Sterling jumped as lawmakers approved a post-Brexit trade
deal with the European Union. The pound stretched as far as
$1.3641 GBP=D3 , levels not seen since May 2018. Against a basket of currencies the dollar had sunk to 89.553
=USD , having touched it lowest since April 2018. That left it
down 7.2% on the year, and no less than 13% on the 102.99 peak
hit during the market mayhem of mid-March.
The next target is 89.277 and then 88.251, which was the
absolute low in 2018.
The prospect of a brighter 2021 has lessened the need for
the safe-haven dollar, while burnishing the attraction of
riskier assets especially in emerging markets.
Bears have also resurrected the "twin deficits" excuse for
shorting the dollar - that the explosion in the budget and trade
deficits means more dollars being printed and moved abroad.
From this perspective the new U.S. stimulus bill is dollar
negative as it adds to the nation's debt, and President-elect
Joe Biden is promising a lot more next year.
The country is also haemorrhaging dollars on its trade
account where the deficit on goods hit a record $84.8 billion in
November as imports surged past pre-pandemic levels.
Likewise, the current account deficit widened to a 12-year
high in the third quarter and there was a large shortfall in net
financial transactions as Americans borrowed more from abroad.
In contrast, the European Union runs a huge current account
surplus, largely thanks to Germany, so there is a natural inflow
to euros through trade.
"The U.S. dependence on foreign savings is increasing and at
3.4% of GDP, it is approaching a danger zone where it will
become increasingly difficult to attract savings without further
dollar weakness, or higher interest rates," said Alan Ruskin,
global head of G10 FX at Deutsche, in a note.
"The deterioration in the 'twin deficits' will do nothing to
improve USD sentiment, even if it does not as yet justify
extreme USD undershooting either."