U.S. currency has surged since last week, when the U.S. Federal
Reserve hinted that interest rates would be increased three
times in 2017 after its first rate hike in a year, with the
dollar index - which measures the greenback against six major
peers - hitting its highest since December 2002 <.DXY>.
It had already been climbing in the wake of Donald Trump's
victory in the U.S. presidential elections six weeks ago, up 5
percent since then, with investors betting the president-elect's
planned tax cuts and increased spending in areas like
infrastructure will boost growth and inflation, leading to
higher interest rates.
The dollar dipped 0.1 percent on Thursday, having also fallen
around a quarter of a percent on Wednesday. But analysts said
this week's moves must be viewed in the context of thin
liquidity, and there was no clear evidence to suggest the
dollar's rally had run out of steam.
"It think we’re pausing – I think the story about U.S. rates has
got further to run at the start of next year, when Trump
presents his wish-list on the budget," said ING currency
strategist Chris Turner, in London.
"We see U.S. 10-year yields pushing up to 2.75 percent in Q1, so
we think there’s a bit more dollar strength to come."
U.S. 10-year Treasury yields have climbed 70 basis points since
Trump's election to as high as 2.6 percent, driving the dollar
While trade is expected to slow further ahead of Christmas on
Sunday, the market's near-term focus is on U.S. economic
indicators due on Thursday, including revised GDP for July to
September, durable goods orders for November, and weekly initial
jobless claims. <ECONUS>
The euro was up 0.2 percent at $1.0448 <EUR=EBS>, rebounding
from $1.0352 on Tuesday, the lowest since January 2003. Some
analysts linked its modest rise to plans to rescue Montei dei
Paschi di Siena, Italy's second-biggest bank.
Others, though, said the single currency's movements were more
related to temporary weakness in the dollar.
"What we might be seeing is when you’ve had such a strong run,
like we’ve seen in the dollar, and you go into a period where
liquidity is thin ... people take profit and close out some
positions," said HSBC currency strategist Dominic Bunning, in
(Additional reporting by Yuzuha Oka in Tokyo; Editing by Alison
Williams and Toby Chopra)
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