The dollar fell broadly on Friday as investors closed their books on 2010, but it still managed to end a volatile year a bit firmer than where it began, with the improving US economy outlook leaving some traders gearing up for a rally in early 2011.
The euro rose 1 percent to $1.3394, extending its recovery from a 2010 low beneath $1.19 - its worst showing since early 2006. But it was set to end the year down 6.5 percent against the dollar, hurt by a debt crisis that engulfed Greece and Ireland, rattled Portugal and Spain and even sowed doubts about the euro's future. It was its biggest annual slide since 2005.
The yen, however, rose about 12 percent against the dollar this year as long-term US interest rates fell and markets feared a sluggish US recovery was running out of steam. On Friday, the dollar fell 0.5 percent to 81.16 yen, its lowest since early November.
For the year, the dollar was up about 1.4 percent against a basket of currencies, though it was 0.7 percent lower on Friday after hitting a seven-week low against the yen and a record low against the Swiss franc. The Australian dollar, which hit a 28-year high of $1.0257 on Friday and was up 14 percent against the greenback this year, may also extend gains if global growth remains firm and commodity prices high.