FOREX-Dollar recovers from six-month low after year-end selloff

(New throughout)
By Kate Duguid
NEW YORK, Jan 2 (Reuters) - The dollar recovered from a
six-month low to add 0.44% on Thursday, the first trading day of
2020, ending a four-day losing streak and a downbeat December
that had left the index virtually flat at the end of 2019.
Trading is likely to remain thin until Tuesday, when most
European countries open after Monday's Epiphany holiday but
market players will be relieved that the dollar navigated the
holiday period without experiencing the money market squeezes
many had feared. The dollar index slumped 0.4% on New Year Eve as large banks
took only a small portion of the $150 billion offered by the
U.S. Federal Reserve's overnight repo operation and borrowing
costs fell to the lowest level since March 2018.
While worries remain that there could be a repeat of last
January's so-called flash crash, when massive stop-loss selling
swept through holiday-thinned currency markets driving the
Japanese yen up dramatically against the Australian and U.S.
dollars, analysts said the Fed's liquidity injections had
reduced the risk.
"The liquidity squeeze didn't materialize so that's
contributing to stability in broader financial markets," said
Lee Hardman, senior FX strategist at MUFG.
"But the dollar story has been turning negative in recent
months, partly because of action taken by the Fed to ease dollar
liquidity," Hardman said, referring to the U.S. central bank's
balance sheet expansion relaunched in October.
Having ended December almost 2% lower against a basket of
currencies, the dollar index inched up to 96.805 .DXY while
against the euro EUR= it was at $1.117, knocking the single
currency from its highest level since early August of $1.125.
The dollar index ended the year virtually flat, after a fall
in December erased the greenback's outperformance for most of
2019. December's drop was primarily attributable to lower demand
for the dollar as a safe-haven asset as trade tensions with
China eased and global growth prospects picked up.
Investors are now waiting for the U.S. ISM manufacturing
survey due on Friday. Across much of Asia and Europe, final
purchasing managers indexes painted a slightly brighter picture,
with French, German and euro zone readings a touch better than
advance PMIs. But they also confirmed an 11th straight month of
contracting euro zone activity. The euro slipped 0.33%, having strengthened 1.8% against the
dollar last month. However, euro zone bond yields extended their
rise and inflation expectations rose to the highest since July.
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U.S. President Donald Trump said on Tuesday that Phase 1 of
a trade deal with China would be signed on Jan. 15 at the White
House. Markets are awaiting further details.

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The Fed dives into the repo market png https://tmsnrt.rs/2sqlazE
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