The euro, the pound and a clutch of trade-sensitive currencies rallied as the dollar slid to a six-month low on Tuesday, as investor confidence in global growth prospects and the Phase 1 U.S.-China trade deal spurred a risk-on move.
U.S. President Donald Trump said on Tuesday that the first phase of an American trade deal with China would be signed on Jan. 15 at the White House.
The dollar index was down 0.36% to 96.388, its fourth consecutive session in the red and its weakest level since July 1. The Phase 1 trade agreement, which was reached earlier in December, has reduced demand for the safe-haven currency, pulling the dollar down 1.92% in the last month.
December's move has undone much of the dollar's strong 2019 thanks to the relative outperformance of the U.S. economy and a long period of uncertainty in the negotiations between Washington and Beijing.
"Weakness in the U.S. dollar towards the end of this year has coincided with the renewed expansion of the Fed's balance sheet and the paring back of pessimism over the outlook for global growth," MUFG analysts said.
On the last trading day of the year, the dollar was up just 0.25% for 2019 compared to 4.4% in 2018. At the end of November, it was up 2.18% for the year. The shift also reflects investor bets that the dollar will weaken further in 2020.
"Everybody has been wanting to short the dollar. It has been the most frustrating trade of the year. I think for the most part, there's not a lot of resistance going back into that trade. If we look into the top 2020 calls for FX, it's going to be short the dollar," said Marvin Loh, senior global macro strategist at State Street Global Markets.
Buoyant end-of-year sentiment encouraged investors to buy up currencies linked to trade and global growth, sending the Australian dollar, Chinese yuan and Scandinavian crowns to multi-month or multi-week highs against the greenback.
Investors' appetite for risk also helped drive the euro to $1.124, a five-month high. It was last trading 0.27% higher at $1.123.
Signs that the euro zone economy may be stabilizing have lifted the common currency in recent weeks as investors unwound short positions.
Sterling hit two-week highs against the dollar, although the possibility of a 'no-deal' Brexit at the end of 2020 means the currency is still not close to where it was on Dec. 12, the day Prime Minister Boris Johnson won the British election.