Politics
EFX

FOREX-Dollar ends strongest year since 2015 on defensive note

* Trump claims progress in trade talk with Xi

* Sterling hits 3-week high in thin year-end trading (Updates throughout)

By Saqib Iqbal Ahmed

NEW YORK, Dec 31 (Reuters) - The dollar fell against the yenand euro in thin year-end trading on Monday as optimism aboutprogress in the U.S.-China trade dispute hurt its safe-havenallure, but the greenback stayed on track to log its strongestannual performance in three years.

The dollar index .DXY , which tracks the greenback versussix peers, was down 0.22 percent on Monday.

"The U.S. dollar is heading into the end of the calendaryear on the defensive as global stocks — bearing in mind thatsome markets are done for the year already — perk up followingpositive comments on U.S.-China trade from President Trump,"Shaun Osborne, chief FX strategist at Scotiabank in Toronto,said in a note.

Equities around the world rose on Monday as hints ofprogress on the Sino-U.S. trade standoff provided optimism inwhat has been a punishing end of year for markets globally.

Risk sentiment brightened slightly when U.S. PresidentDonald Trump said he held a "very good call" with China'sPresident Xi Jinping on Saturday to discuss trade and claimed"big progress" was being made.

The two nations have engaged in a trade war for much of2018, shaking world financial markets as punitive tariffsdisrupted the flow of hundreds of billions of dollars worth ofgoods between the world's two largest economies.

The yen which tends to benefit during geopolitical orfinancial stress as Japan is the world's biggest creditornation, remained in demand and the greenback hit a freshsix-month low against the Japanese currency JPY= .

"We've heard this all before and are still awaiting concretedetails, of course," said Osborne.

The persistent tensions have boosted safe-haven demand forthe greenback this year as investors bet that the United Statesis in better shape than its rivals to weather a trade war.

For the year, the index was up 4.4 percent, its best yearlypercentage gain since 2015.

While the dollar has been relatively stable going into theend of 2018, expensive valuation, a flagging equity boom, waningcash repatriation by U.S. companies, and the possibility thatthe U.S. Federal Reserve will not raise interest rates as manytimes as previously signaled pose a challenge for the greenback.

"We still rather think the U.S. dollar may be peaking afterspending much of the past year on the offense," said Osborne.

On Monday, the euro EUR= EBS was 0.08 percent higheragainst the greenback. Although the single currency has gainedversus the dollar in recent weeks, economic growth and inflationin Europe remain much weaker than the European Central Bank'sexpectations.

The euro is set to lose nearly 5 percent versus the dollarin 2018.

Sterling, which has been battered this year by Brexit woes,rose 0.31 percent to a three-week high GBP= . The British poundhas lost about 6 percent of its value versus the dollar thisyear.

saqib.ahmed@thomsonreuters.com saqib.ahmed.thomsonreuters.com@reuters.net


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