FOREX-Euro and pound inch up as growth optimism cheers investors

* Dollar loses ground against most currencies
* Australian dollar best outperforming G10 currency
overnight
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Olga Cotaga
LONDON, Dec 31 (Reuters) - The euro and the British pound
rose as the dollar weakened on Tuesday as investors saw global
growth improving next year, with the United States and China due
to finally sign a Phase 1 trade agreement this week.
The U.S. currency had maintained its strength over the
course of the year as investors saw the U.S. economy
outperforming the rest of the world.
In thin volumes on the last day of the decade, currencies
overall were more volatile than many expected, with the
trade-sensitive Australian dollar, Chinese yuan and Scandinavian
currencies all rising to their highest levels in weeks.
Sterling hovered around the two-week high it hit on Monday
against the dollar, though the possibility of a 'no-deal' Brexit
at the end of 2020 kept any gains subdued.
Still, analysts did not attribute the moves to any major
particular developments.
"I can't see much reason for the movement in the FX market
except end-year position squaring, or just being careful and
cutting positions ahead of the New Year's holiday and the start
of 2020. As a result I wouldn't draw any big conclusions from
it," said Marshal Gittler, currency analyst at ACLS Global.
Chinese Vice Premier Liu He will visit Washington this week
to sign a Phase 1 trade deal with the United States, the South
China Morning Post reported on Monday. White House trade adviser Peter Navarro said on Monday the
trade deal would likely be signed in the next week, but that
confirmation would come from President Donald Trump or the U.S.
trade representative. Investors' appetite for risk helped drive the euro EUR=EBS
up 0.1% to $1.1206, close to the 4-1/2-month high of $1.1221
reached on Monday.
Signs that the euro zone economy may be stabilising have
lifted the single currency in recent weeks as investors unwound
short positions, though the currency has shed 2.2% of its value
against the dollar in 2019. Latest CFTC data shows that hedge funds held $9.16 billion
of euro shorts, far less than the $14.84 billion seen in May.
EURNETUSD=
The U.S. dollar was weak across the board, though over the
course of the year, the index that tracks the dollar against a
basket of six currencies has risen by half a percentage point
.DXY .
MUFG analysts saw a "bearish technical development for the
U.S. dollar that signals an increasing risk of further weakness
ahead".
"Weakness in the U.S. dollar towards the end of this year
has coincided with the renewed expansion of the Fed's balance
and the paring back of pessimism over the outlook for global
growth," they said.
Versus the Japanese yen, the dollar fell to a near
three-week low of 108.625 yen JPY=EBS and was last down 0.2%.
Against the Chinese yuan, it shed 0.2% to 6.9674 in the
offshore market CNH=EBS after dipping to a 2-1/2-week low of
6.9630, as strong Chinese economic data helped boost the Chinese
currency. The Australian dollar rose to a five-month high of 0.7310
versus the U.S. dollar AUD=D3 , making it the best performing
major currency overnight, according to MUFG.
The New Zealand dollar, however, "remains the stand out
performer of the last quarter, surging nearly 8% over the past
three months, largely on the back of more positive sentiment
about global trade", MUFG analysts said.
Scandinavian currencies also strengthened against the
greenback following all-time lows seen this year on the back of
global growth fears sparked by U.S.-Chinese trade disputes.
The pound was up 0.3% at $1.3144 GBP=D3 , close to the
$1.3150 high seen on Monday, and a notch stronger against the
euro at 85.41 pence EURGBP=D3 .
Sterling has gained nearly 3% against the dollar and 5%
versus the euro this year, jumping to as high as $1.35 recently
after Prime Minister Boris Johnson's overwhelming win in a
parliamentary election, which eliminated a measure of
uncertainty.