FOREX-Dollar on borrowed time as U.S. twin deficits balloon

* Euro clears $1.2300 to be up 10% for year
* Yuan extends its climb to pass 6.49 per dollar
* Dollar index drops to lowest since April 2018
* Sterling firm as lawmakers approve Brexit deal

By Wayne Cole
SYDNEY, Dec 31 (Reuters) - The dollar was ending 2020 in a
downward spiral on Thursday with investors wagering a global
economic recovery will suck money into riskier assets even as
the U.S. has to borrow ever more to fund its swelling twin
deficits.
The euro stood at $1.2291 EUR= , having hit its highest
since April 2018 with a gain of almost 10% for the year. The
next stops for the bull train are $1.2413 and $1.2476, on the
way to the 2018 peak at $1.2555.
The dollar was lying at 103.15 yen JPY= , but managed to
hold above the December low of 102.86.
It also fell against the Chinese yuan, breachingh 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 held gains after lawmakers approved a post-Brexit
trade deal with the European Union, stretching as far as $1.3641
GBP=D3 a level unseen since May 2018. Against a basket of currencies the dollar had sunk to 89.643
=USD , having touched it lowest since April 2018. That left it
down 7.2% on the year, and no less than 13% on the 102.99 peak
hit during the market mayhem of mid-March.
The next target is 89.277 and then 88.251, which was the
absolute low in 2018.
The prospect of a brighter 2021 has lessened the need for
the safe-haven dollar, while burnishing the attraction of
riskier assets especially in emerging markets.
Bears have also resurrected the "twin deficits" excuse for
shorting the dollar - that the explosion in the budget and trade
deficits means more dollars being printed and moved abroad.
From this perspective the new U.S. stimulus bill is dollar
negative as it adds to the nation's debt, and President-elect
Joe Biden is promising a lot more next year.
The country is also haemorrhaging dollars on its trade
account where the deficit on goods hit a record $84.8 billion in
November as imports surged past pre-pandemic levels.
Likewise, the current account deficit widened to a 12-year
high in the third quarter and there was a large shortfall in net
financial transactions as Americans borrowed more from abroad.
In contrast, the European Union runs a huge current account
surplus, largely thanks to Germany, so there is a natural inflow
to euros through trade.
"The U.S. dependence on foreign savings is increasing and at
3.4% of GDP, it is approaching a danger zone where it will
become increasingly difficult to attract savings without further
dollar weakness, or higher interest rates," said Alan Ruskin,
global head of G10 FX at Deutsche, in a note.
"The deterioration in the 'twin deficits' will do nothing to
improve USD sentiment, even if it does not as yet justify
extreme USD undershooting either."