Yearend Swing in the Dollar Against Euro and/or Mark

December 30, 2010

The dollar tends to fall against the dominant European currency in the second half of December but then recoup ground in the first half of January.  These tendencies have occurred too frequently to constitute a coincidence.

The seasonal pattern manifested itself almost from the very beginning of floating exchange rates in 1973, although that year was one of the few exceptions.  Over the fourteen years from 1974 through 1987, the dollar declined against the mark thirteen times between mid- and end-December.  The three largest declines over the second half of December were 3.9% in 1986, 3.9% in 1978 and 3.1% in 1987.  The one time the dollar recorded a gain against the mark, 2.2% in 1984, occurred during the highly speculative final months of a bull run from DEM 1.70 to DEM 3.48 that occurred in just over five years.  The dollar climbed from DEM 3.089 in mid-December 1984 to DEM 3.156 at year-end and went on to advance another 10% before the bubble burst on February 26, 1985.

The first leg of the dollar’s propensity to drop as yearend approaches but rally in early January faded after 1987 but returned eleven years later after European currencies merged to form the euro.  Previously, central banks in Europe had taken their cue from the German Bundesbank, and afterward the European Central Bank took over responsibility for regional monetary policy with an ideological bias very similar to that practiced in Germany previously.  During the final 11 years of the mark’s existence, the dollar on average only dipped 0.1% between mid-December and end-year and then rallied 2.0% on average by the middle of January.  That left the dollar with a 1.9% average positive movement between mid-December and mid-January.  These swings are compared to those from 1975 to 1987 below.  2H-Dec connotes the second half of December, while 1H-Jan represents movement in the first half of January.  The rightmost column shows the net “total” dollar change between mid-December and mid-January.  Note that even though the dollar’s December bias disappeared temporarily, its habit of starting the calendar year on a rising note actually became stronger in the latter period.

Averages 2H-Dec 1H-Jan Total
1975-1987 -1.7% +0.7% -1.0%
1988-1998 -0.1% +2.0% +1.9%


This month is the twelfth December since the birth of the euro.  During the previous eleven years from 1999 through 2009, the dollar on average fell by 1.0% in late December and then rose 0.7% in the first half of January.  The January movement had the same magnitude and direction in 2000-2010 as in 1976-1988, and December’s weak tendency has returned, albeit not quite as pronounced as before.  Consequently, whereas the average dollar drop between mid-December and mid-January had been 1.0% in 1975-87, it was only 0.3% from 1999 to 2009.

The interesting thing is that if we compare the full period when the mark was Europe’s hegemon (1975-1998) to the subsequent euro era, the average changes for the second half of December are rather similar to one another, and the same assertion can be made about the moves in the first half of January.

  2H-Dec 1H-Jan Total
1975-1998 -1.0% +1.3% +0.3%
1999-2009 -1.0% +0.7% -0.3%


With a day to go, the dollar is 0.6% weaker than its December 15th close in New York.  That drop is a shade smaller than a typical year but easily with normal boundaries.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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