* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Sujata Rao
LONDON, Dec 31 (Reuters) - The dollar was set to end 2020
around 2-1/2 year lows on Thursday, allowing currencies from the
euro to Chinese yuan to strengthen, while holiday-thinned euro
zone bond yields were mostly steady after dropping 30-100 basis
points over the year.
The prospect of a brighter 2021 has lessened the lure of the
safe-haven dollar, while burnishing the attraction of assets
overseas, especially in emerging markets.
News that UK companies would be allowed another three-month
transition period for swaps trading on EU platforms, averting
the threat of disruptions next week, pressured the greenback
further by sending sterling to a new May 2018 high GBP=D3
This week's data also showed the U.S. trade account
haemorrhaging dollars as the goods deficit hit a record $84.8
billion in November. The current account gap too widened to a
12-year high in the third quarter.
"I expect the dollar to depreciate further over the next few
years as the Fed keeps rates at zero whilst maintaining its
bloated balance sheet," Kevin Boscher, chief investment officer
at asset manager Ravenscroft told clients.
"The magnitude of the twin-deficits dwarfs any other major
economy," he noted.
Against a currency basket, the dollar is around 89.56, just
off April 2018 lows of 89.515 =USD for a 2020 loss of 7.2%. A
fall past 88.25 will take it all the way to 2014 troughs.
The greenback's weakness boosted the euro above $1.23, the
highest since April 2018, with a gain of almost 10% for the
year.
Against the yuan, the dollar breached 6.4900 CNH= for the
first time since mid-2018, though Chinese banks were later
reported to be buying dollars to limit the drop.
Sterling rose as far as $1.3686, while against the euro it
rallied 0.6% to a high of 89.76 pence EURGBP=D3 On sovereign bonds, borrowing costs inched lower in thin
liquidity, with this year's top performer, Italy, seeing 10-year
yields slip one basis point to around 0.51%.
They started the year at almost 1.5%, only to drop steadily
after the ECB's stimulus explosion in response to the COVID-19
pandemic IT10YT=RR .
Spanish and Portuguese 10-year yields hovered above 0%, down
some 50 bps on the year ES10YT=RR PT10YT=RR . Even German
yields, already negative back in January, fell around 30 bps.
After bumper 2020 returns - 4%-5% on 10-year German, Spanish
and Portuguese debt, and over 8% on their Italian and U.S.
equivalents - yields could grind gradually higher next year. Yet
the improving growth picture should be broadly offset by central
bank buying.
"Financial repression is very much intact and bond yields
will be kept low across the maturity range in order to force
investors further up the risk scale in a search for yield,"
Boscher added.
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Unloved dollar https://tmsnrt.rs/3rHk8J9
Bond returns https://tmsnrt.rs/3aTuTSU
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