(All UK financial markets are closed on Thursday for the New
Year holiday, and will reopen on Friday, Jan. 2. FX coverage
from London will end around midday on Wednesday, and resume on
Friday.)
* Euro steady vs dlr; set for first yearly drop since 2005
* Dollar seen on shaky footing heading into 2009
* Pound down 27 pct vs dlr, worst since gold standard ended
* Yen seen as standout FX winner in '08
(Adds quotes, changes byline, dateline; previous HONG KONG)
By Jessica Mortimer
LONDON, Dec 31 (Reuters) - The euro was steady against the
dollar in thin trade on Wednesday, but it was poised to record
its first annual fall against the dollar in three years after
the financial crisis sparked a rush towards the U.S. currency.
The dollar has gained against a basket of currencies <.DXY>
for the first time since 2005 as a wave of deleveraging and
dollar repatriation flows bolstered the currency, alongside the
low-yielding yen, in a period of extreme risk aversion.
The euro has fallen by around 3.4 percent against the dollar
over the year. However, it recovered towards the end of the
year, jumping by over 10 percent during December, a trend
analysts expect will continue.
Concerns about the health of the U.S. economy and how the
country will fund a massive fiscal stimulus programme when it is
running a substantial current account deficit are expected to
ensure the dollar starts the year on the back foot.
The relatively staid rate of monetary easing by the European
Central Bank meanwhile has benefitted the euro as it contrasts
with the dramatic pace set by the U.S. Federal Reserve and the
Bank of England.
The recent run of poor U.S. data showed no sign of abating
as figures on Tuesday showed grim record lows for U.S. consumer
confidence and home prices [], while U.S. jobless
claims at 1330 GMT are seen revealing another substantial rise.
"The trend of dollar weakness is unlikely to have yet seen
the end," Bank of America G10 currency strategist David Powell
said.
"Euro/dollar is set for additional gains on the continued
easing of monetary policy in the U.S. via quantitative easing,"
he added.
The U.S. Federal Reserve has slashed interest rates to near
zero and policymakers have said they are ready to take
unconventional steps of providing liquidity to bolster a
moribund economy.
The Fed detailed a plan to buy up to $500 billion of agency
mortgage debt by the middle of 2009 -- a move that would be
funded by expanding its balance sheet and in effect printing
more dollars. []
At 0918 GMT, the euro rose 0.1 percent against the dollar
<EUR=> to $1.4064, though trading was very thin with Tokyo on
holiday and many investors away for the New Year break.
The euro hovered near an all-time low against the pound at
97.47 pence <EURGBP=D4> on the Reuters dealing system. The
single currency is up 33 percent on the year and looked set to
breach parity versus the pound for the first time since its
launch in 1999.
Against the dollar, the pound was hovering at $1.4435, just
above a 6-1/2-year low hit on Tuesday <GBP=D4>.
STERLING SINKS, YEN SHINES
Sterling stood out as the major loser among major currencies
in 2008. Its 27 percent slide against the dollar over the year
would be the biggest since the gold standard was abandoned in
1971.
The pound has taken a beating over the last few months of
the year as the Bank of England frantically slashed borrowing
costs by 300 basis points since October to 2.0 percent in a bid
to shore up a rapidly slowing economy.
More rate cuts are expected in the new year, and the BoE
could adopt similar aggressive monetary easing measures to those
adopted by the Fed.
The standout winner of 2008 is the yen, which has soared as
the financial crisis prompted a massive unwinding of carry
trades -- borrowing in the low-yielding yen to invest in
higher-yielding assets elsewhere.
"As the old year splutters to its end a look at the currency
ranker for the year shows that within the G10 world, the gold
medal currency in 2008 was the yen," Calyon senior foreign
exchange strategist Stuart Bennett said in a note to clients.
Further gains in 2009 would be frowned on by the Japanese
authorities, however, and this is "likely to keep the threat of
intervention in the market on the agenda", he added.
The dollar was flat at 90.33 yen <JPY=>, but over the year
it has fallen by around 19 percent. The euro has shed about 22
percent of its value against the Japanese currency to trade at
127.26 yen <EURJPY=R>.
The Bank of Japan's trade-weighted yen index has shot up 25
percent this year through November. If maintained to the end of
the year, it would be the biggest rise since the currency was
allowed to trade freely in 1973.
(Reporting by Jessica Mortimer; Editing by Victoria Main)
