FOREX-Dollar up in 2010; gains seen on recovery hopes

* Euro posts worst year since 2005 on debt fears

* Euro zone debt troubles return to focus

By Wanfeng Zhou

NEW YORK, Dec 31 (BestGrowthStock) – The U.S. dollar ended a
volatile year on Friday a bit firmer than where it began with
investors gearing up for gains in early 2011 on expectations
the U.S. economic recovery was gaining momentum.

The euro, which had its worst year against the dollar since
2005, is likely to stay under pressure as the market focuses on
Portugal, Spain and other euro zone countries struggling to
address debt and banking problems.

The United States will release December employment data
next Friday. Economists polled by Reuters expect to see a
private sector jobs gain of 140,000 and a decline in the
jobless rate to 9.7 percent. (ECI/US: )

Expectations of above-forecast jobs growth have grown after
data this week showed the four-week average of new jobless
claims — a measure of underlying labor market trends — fell
to its lowest level since July 2008.

“The numbers coming out of the United States over the last
two months have been on the stronger side and that is probably
going to continue next week,” said Paresh Upadhyaya, head of
Americas G10 FX Strategy at BofA Merrill Lynch Global Research
in New York.

“That will continue to put upward pressure on yields and
therefore the dollar will remain on the stronger side” against
the euro, yen and sterling, he said.

Higher U.S. yields in 2011 and Japan’s increased reliance
on debt will boost the dollar — particularly against the yen
— said Boris Schlossberg, research director at GFT in New
York.

The yen neared 80 per dollar earlier this year, just shy of
a post-World War Two high of 79.75 set in 1995, as long-term
U.S. interest rates fell and markets feared a sluggish U.S.
recovery was running out of steam.

A key risk for the dollar next week, strategists at BNP
Paribas said, could come from Federal Reserve Chairman Ben
Bernanke’s testimony to the Senate budget panel on Friday.

“The greater risk is that he reinforces (the Fed’s)
commitment to keep rates low and any hint that further
quantitative easing beyond the $600 billion may be an option
will see the U.S. dollar weaker,” they wrote to clients.

For the year, the dollar was up 1.5 percent against a
basket of six currencies (.DXY: ), but it fell about 13 percent
against the yen (JPY=EBS: ).

The Australian dollar (AUD=D4: ), which hit a 28-year high of
$1.0257 on Friday and was up 14 percent against the greenback
this year, may extend gains if global growth remains firm and
commodity prices high. But a slowdown in China is a risk, and
some analysts said the Aussie’s 2010 gains may make it ripe for
a correction next year.

THE EURO’S STRUGGLES

The euro finished the year down 6.7 percent against the
dollar, its biggest annual slide since 2005, hurt by a debt
crisis that engulfed Greece and Ireland, rattled Portugal and
Spain and even sowed doubts about the euro’s future.

But the euro (EUR=EBS: ) recouped some losses in December and
climbed above $1.34 on Friday, extending a recovery from a 2010
low beneath $1.19 — its worst showing since early 2006.

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

The euro may remain under pressure early in 2011 as an
estimated 150 billion to 200 billion euros in euro zone
sovereign bonds come to market, and some investors worry demand
may be weak.

“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.

FRANC TO COME BACK TO EARTH?

The dollar set a record low of 0.9301 Swiss franc (CHF=EBS: )
on Friday. The euro/franc pair hit a record low on Thursday at
1.2398 francs and lost 16 percent this year.

Concerns about the euro zone debt crisis and more muted
worries about Washington’s finances have enhanced the
safe-haven allure of the Swiss currency.

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 it started last month. Analysts also fear
an Obama administration deal to extend U.S. tax cuts could
swell the budget deficit.

While Schlossberg extolled Switzerland’s fiscal health and
called the franc “arguably the only sound money left” among
major currencies, he said recent gains were excessive.

“It’s just not sustainable that a country of 7 million can
absorb the capital flows they’ve been absorbing,” he said.
(Additional reporting by Steven C. Johnson; Editing by Gary
Crosse)

FOREX-Dollar up in 2010; gains seen on recovery hopes