FOREX-Dollar falls broadly, but edges up on the year

* Dollar falls broadly, early 2011 outlook brighter

* Yen hits seven-week high; some see losses ahead in 2011

* Swiss franc hits new peak against the dollar

* Euro zone debt worries still on investors’ minds
(Recasts, updates prices, adds comment, changes byline)

By Steven C. Johnson

NEW YORK, Dec 31 (BestGrowthStock) – The dollar fell broadly on
Friday as investors closed their books on 2010 but still
managed to end a volatile year a bit firmer than where it
began, leaving some gearing up for a rally in early 2011.

The euro rose Friday 0.8 percent to at $1.3386 (EUR=: ),
extending its recovery from a 2010 low beneath $1.19 — its
worst showing since early 2006.

But it was still set to end the year down almost 7 percent
against the dollar, hurt by a debt crisis that engulfed Greece
and Ireland, rattled Portugal and Spain and even sowed doubts
about the currency’s future.

The yen, however, rose some 12 percent against the dollar
this year as long-term U.S. interest rates fell and markets
feared a sluggish U.S. recovery was running out of steam.

The dollar fell 0.4 percent to 81.21 yen (JPY=: ) on Friday.

For the year, the dollar up about 1.5 percent against a
basket of major currencies (.DXY: ), though it was half a percent
lower on Friday, pulled down as the greenback hit a seven-week
low against the yen and a record low against the Swiss franc.

Still, analysts expect continued strong global growth, a
more durable U.S. economy and lingering worries about Europe to
lead to dollar gains in early 2011.

“We’re still facing a lot of uncertainty next year, but the
U.S. economic data is starting to turn for the better, and I
think that will spark dollar gains, particularly against the
yen,” said Boris Schlossberg, research director at GFT Forex.

He said higher U.S. bond yields and Japan’s increased
reliance on debt will eventually put pressure on the yen, which
neared 80 per dollar earlier this year, just shy of a
post-World War II high of 79.75 yen set in 1995.

The dollar was last at 81.21 yen (JPY=: ), down 0.4 percent
from late Thursday.

THE EURO’S STRUGGLES

Traders tied much of the dollar’s losses this week to thin
volume and year-end positioning, with many investors taking
profits on extended bets against the euro that have built up
over recent months as fears of a euro zone debt crisis grew.

The euro’s repeated refusal in recent weeks to hold below a
200-day moving average, now at $1.3085, has also contributed to
recent gains.

Traders cited buying by Asian central banks and real money
accounts, while option barriers are reported at $1.3400.

The euro has lost nearly 7 percent against the dollar and
about 18 percent against the yen in 2010. It is likely to stay
under pressure as an estimated 150 to 200 billion euros in euro
zone sovereign bonds hits the market in the next two months.

“Everybody, it seems, is anticipating a very rocky road for
the euro zone over the next three months,” said Gareth Berry,
G10 FX strategist for UBS in Singapore. Market players seemed
worried demand for euro zone debt issues could be weak.

Some analyst tied the Swiss franc’s recent rise to worries
about both euro zone and U.S. finances.

Despite signs of stronger U.S. growth, the Federal Reserve
has given no indication that it plans to curtail a $600 billion
bond-buying program that began in November. Some analysts have
also worried that a deal to extend U.S. tax cuts for all
earners could put additional pressure on a stretched budget.

The dollar set a record low against the Swiss franc of
0.9322 (CHF=EBS: ) on Friday while the euro traded at 1.2515
francs (EURCHF=EBS: ) after hittin a record low of 1.2398
Thursday.

FRANC TO COME BACK TO EARTH?

But while Schlossberg extolled Switzerland’s fiscal health
and called the franc “arguably the only sound money left” among
major currencies, he said it’s rise has become extended.

“It’s just not sustainable that a country of seven million
can absorb the capital flows they’ve been absorbing from both
Europe and the United States,” he said.

In a note to clients, UBS strategist Geoffrey Yu said a
pattern of strong inflows into U.S. securities in January
should boost the dollar and said its rise could be notably
pronounced against the franc.

Robust global growth should also support commodity-linked
currencies such as the Australian dollar, which rose 13 percent
against its U.S. counterpart in 2010 and 22 percent against the
euro. It was trading at $1.0175 (AUD=D4: ) on Friday, near a
28-peak of $1.0198 touched on Thursday.

Risks, however, include a slowdown in the Chinese economy,
which relies heavily on Australian commodities. Analysts said
tighter monetary policy there could also hurt domestic demand
and push down the Aussie dollar.

(Additional reporting by Anirban Nag in London; editing by
W Simon )

FOREX-Dollar falls broadly, but edges up on the year