* Dollar loses ground against most currencies
* Australian dollar best outperforming G10 currency overnight
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Olga Cotaga
LONDON, Dec 31 (Reuters) - The euro and the British pound rose as the dollar weakened on Tuesday as investors saw global growth improving next year, with the United States and China due to finally sign a Phase 1 trade agreement this week.
The U.S. currency had maintained its strength over the course of the year as investors saw the U.S. economy outperforming the rest of the world.
In thin volumes on the last day of the decade, currencies overall were more volatile than many expected, with the trade-sensitive Australian dollar, Chinese yuan and Scandinavian currencies all rising to their highest levels in weeks.
Sterling hovered around the two-week high it hit on Monday against the dollar, though the possibility of a ‘no-deal’ Brexit at the end of 2020 kept any gains subdued.
Still, analysts did not attribute the moves to any major particular developments.
“I can’t see much reason for the movement in the FX market except end-year position squaring, or just being careful and cutting positions ahead of the New Year’s holiday and the start of 2020. As a result I wouldn’t draw any big conclusions from it,” said Marshal Gittler, currency analyst at ACLS Global.
Chinese Vice Premier Liu He will visit Washington this week to sign a Phase 1 trade deal with the United States, the South China Morning Post reported on Monday.
White House trade adviser Peter Navarro said on Monday the trade deal would likely be signed in the next week, but that confirmation would come from President Donald Trump or the U.S. trade representative.
Investors’ appetite for risk helped drive the euro up 0.1% to $1.1206, close to the 4-1/2-month high of $1.1221 reached on Monday.
Signs that the euro zone economy may be stabilising have lifted the single currency in recent weeks as investors unwound short positions, though the currency has shed 2.2% of its value against the dollar in 2019.
Latest CFTC data shows that hedge funds held $9.16 billion of euro shorts, far less than the $14.84 billion seen in May.
The U.S. dollar was weak across the board, though over the course of the year, the index that tracks the dollar against a basket of six currencies has risen by half a percentage point .
MUFG analysts saw a “bearish technical development for the U.S. dollar that signals an increasing risk of further weakness ahead”.
“Weakness in the U.S. dollar towards the end of this year has coincided with the renewed expansion of the Fed’s balance and the paring back of pessimism over the outlook for global growth,” they said.
Versus the Japanese yen, the dollar fell to a near three-week low of 108.625 yen and was last down 0.2%.
Against the Chinese yuan, it shed 0.2% to 6.9674 in the offshore market after dipping to a 2-1/2-week low of 6.9630, as strong Chinese economic data helped boost the Chinese currency.
The Australian dollar rose to a five-month high of 0.7310 versus the U.S. dollar, making it the best performing major currency overnight, according to MUFG.
The New Zealand dollar, however, “remains the stand out performer of the last quarter, surging nearly 8% over the past three months, largely on the back of more positive sentiment about global trade”, MUFG analysts said.
Scandinavian currencies also strengthened against the greenback following all-time lows seen this year on the back of global growth fears sparked by U.S.-Chinese trade disputes.
The pound was up 0.3% at $1.3144, close to the $1.3150 high seen on Monday, and a notch stronger against the euro at 85.41 pence.
Sterling has gained nearly 3% against the dollar and 5% versus the euro this year, jumping to as high as $1.35 recently after Prime Minister Boris Johnson’s overwhelming win in a parliamentary election, which eliminated a measure of uncertainty.
Reporting by Olga Cotaga