Dollar at 14-year peak vs euro on Trump trade

The dollar held the upper hand against its major rivals on Wednesday, sitting near a 14-year top against the euro, thanks to bets of higher U.S. growth and a faster pace of interest rate increases under incoming president Donald Trump.

In thinning trading ahead of the year-end holiday period, the euro slipped below last week’s 14-year low of $1.03665 on Tuesday to reach $1.0352, a level last seen in January 2003.

That helped to push the dollar’s trade-weighted index against a basket of six major currencies to touch 103.65, also a 14-year high.

“The dollar looks pretty strong. Although there are no fresh trading factors as we head into the Christmas, we see dollar buying whenever the currency slips,” said Shinichiro Kadota, chief forex strategist at Barclays.

“We haven’t seen anything that could change its Trump-driven rally,” he added.

The dollar index has risen 5.8 percent since the upset election victory by Trump, who has pledged big tax cuts and spending increases and threatened to slap tariffs on imports from China and Mexico as well as taking a tougher stance on immigration.

Investors rushed to U.S. assets as they bet his expansionary fiscal policy will boost U.S. growth, inflation and interest rates. The yield allure of dollar-based assets, underpinned by surging U.S. bond yields, remains a main draw for the greenback.

With central banks in Europe and Japan committing to very loose monetary policies, investors continue to pile into the dollar.

The Federal Reserve, which hiked rates last week, signaled three more increases next year from the previous projection of two.

Against the yen the dollar edged up to 117.83 yen, coming within reach of its 10 1/2-month high of 118.66 touched on Dec 15.

Selling in the yen gathered pace after the Bank of Japan maintained its policy settings on Tuesday and after Governor Haruhiko Kuroda doused talk the BOJ might consider raising the target in the 10-year bond yield next year.

The British pound fell to one-month low of $1.2313 on Monday, pressured by renewed uncertainty over the process by which Britain will leave the European Union.

Looking ahead, traders are casting an eye on Italy’s troubled bank Monte dei Paschi di Siena, which needs to raise 5 billion euros ($5.2 billion) by the end of the year to avoid being wound down by the European Central Bank.

Source: Reuters