(New throughout)By Kate DuguidNEW YORK, Jan 2 (Reuters) - The dollar recovered from asix-month low to add 0.44% on Thursday, the first trading day of2020, ending a four-day losing streak and a downbeat Decemberthat had left the index virtually flat at the end of 2019.
Trading is likely to remain thin until Tuesday, when mostEuropean countries open after Monday's Epiphany holiday butmarket players will be relieved that the dollar navigated theholiday period without experiencing the money market squeezesmany had feared. The dollar index slumped 0.4% on New Year Eve as large bankstook only a small portion of the $150 billion offered by theU.S. Federal Reserve's overnight repo operation and borrowingcosts fell to the lowest level since March 2018.While worries remain that there could be a repeat of lastJanuary's so-called flash crash, when massive stop-loss sellingswept through holiday-thinned currency markets driving theJapanese yen up dramatically against the Australian and U.S.dollars, analysts said the Fed's liquidity injections hadreduced the risk."The liquidity squeeze didn't materialize so that'scontributing to stability in broader financial markets," saidLee Hardman, senior FX strategist at MUFG."But the dollar story has been turning negative in recentmonths, partly because of action taken by the Fed to ease dollarliquidity," Hardman said, referring to the U.S. central bank'sbalance sheet expansion relaunched in October.Having ended December almost 2% lower against a basket ofcurrencies, the dollar index inched up to 96.805 whileagainst the euro it was at $1.117, knocking the singlecurrency from its highest level since early August of $1.125.The dollar index ended the year virtually flat, after a fallin December erased the greenback's outperformance for most of2019. December's drop was primarily attributable to lower demandfor the dollar as a safe-haven asset as trade tensions withChina eased and global growth prospects picked up.
Investors are now waiting for the U.S. ISM manufacturingsurvey due on Friday. Across much of Asia and Europe, finalpurchasing managers indexes painted a slightly brighter picture,with French, German and euro zone readings a touch better thanadvance PMIs. But they also confirmed an 11th straight month ofcontracting euro zone activity. The euro slipped 0.33%, having strengthened 1.8% against thedollar last month. However, euro zone bond yields extended theirrise and inflation expectations rose to the highest since July. U.S. President Donald Trump said on Tuesday that Phase 1 ofa trade deal with China would be signed on Jan. 15 at the WhiteHouse. Markets are awaiting further details.<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^The Fed dives into the repo market png ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Kate Duguid and Sujata Rao; Editing by WillDunham)
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