SAN FRANCISCO (MarketWatch) -- The dollar managed gains against most major counterparts Monday, in extremely thin trading conditions on the last day of what was not a winning year for the greenback.
The dollar was on track to lose more than 10% against the euro, more than 6% against Japan's yen and about 2% on the British pound sterling. The dollar index, which tracks the U.S. unit against a basket of six major currencies, was down more than 8%. "2007 is likely to go down as a year that defenders of the dollar would like to forget," said Adam Hewison, president of INO.com, a technical-analysis site. "I would hate to think what would happen to the dollar if the current administration had a weak-dollar policy," Hewison added, referring to the strong-dollar policy that U.S. Treasury Secretary Henry Paulson consistently maintained was in place in his remarks throughout the year. Late Monday, the dollar index was at 76.675, up from 76.190 in late U.S. trading Friday.
The dollar was buying 111.65 yen, down from 112.55 yen late Friday. The euro was trading at $1.4587, down from $1.4715 Friday. In November, the euro rose as high as $1.4967, which was its highest level since Europe's united currency began trading in January 1999. The pound was at $1.9865, down from $1.9932 Friday. The dollar gained against its Canadian counterpart Monday, but was still on track to lose more than 17% for the year. The greenback bought C$0.9981, up from C$0.9805 Friday. In September, the loonie reached parity with the U.S. dollar for the first time since 1976, and hit a modern-day high of C$1.1039 in November.
On Wall Street, stocks closed down Monday but still posted gains for the year. Lingering housing woes. Most analysts ascribed the bulk of the dollar's 2007 woes to the subprime mortgage meltdown and subsequent credit crisis in August, which led the Federal Reserve to embark on monetary easing the following month. Lower rates pressure the dollar, because they reduce the returns on dollar-denominated assets. The Fed's easing was eventually followed by interest rate cuts by the Bank of England and the Bank of Canada.
"At the end of a year which saw the worst credit crunch in over a decade, a deterioration in the outlook for the US economy and the start of a rate cutting cycle by the Fed, followed by the BOE and BOC, markets are closing the year still concerned about the financial markets and the U.S. economy and are pricing in further Fed easing," wrote currency analysts at Brown Brothers Harriman.
Some analysts don't expect a repeat of 2007's dismal dollar performance in the year to come. As the subprime fallout continues to spread to other parts of the globe, the dollar's relative appeal will grow toward the latter half of the year, as U.S. investors bring assets home.
Earlier Monday, data from the National Association of Realtors offered a glimmer of stability in the beleaguered housing sector, showing that sales of existing homes rose 0.4% in November to a seasonally adjusted annualized rate of 5 million, in line with expectations.
But analysts cautioned that the modest uptick likely doesn't herald a turnaround in the sector. "Despite the good news in this report, we could just be in the eye of the storm, as a significant number of mortgages reset early in 2008 will likely increase delinquencies and foreclosures driving prices lower and pushing buyers away," wrote Benjamin Reitzes of BMO Capital Markets Economics. "This could get even worse before it gets better," he added.
After the holiday, investors will be watching key data releases this week for clues on how the U.S. economy is faring, and whether more interest rate cuts lie ahead. The Institute for Supply Management's manufacturing and non-manufacturing surveys are scheduled for release at 10 a.m. Eastern on Wednesday. Analysts surveyed by MarketWatch are expecting the manufacturing index to be roughly flat in December.
Then on Friday, the nonfarm payrolls report is expected to show that payrolls increased by 70,000, according to economist surveyed by MarketWatch.
Lisa Twaronite reports for MarketWatch from San Francisco.