Dollar dips after soaring
to 11-month highs
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[November 15, 2016]
By Jemima Kelly
LONDON
(Reuters) - The dollar slipped from an 11-month high against a basket of
major currencies on Tuesday, pausing for breath after rallying almost 3
percent since Donald Trump won the U.S. presidential election.
Trump's shock victory has fueled expectations of higher U.S. growth,
while his plans for heavy fiscal spending and trade protectionism are
also seen as likely to fuel inflation. The dollar has had its best week
in a year <.DXY>, while 10-year U.S. government bond yields have jumped
about 0.4 percentage points to 10-month highs <US10YT=RR>.
Having reached 100.22 on Monday, its highest since early December 2015,
and having gained for six consecutive days - its best run in six months
- the dollar index, which measures the greenback's value against a
basket of six major currencies, fell 0.2 percent to 99.908, while U.S.
bond yields eased.
It had earlier fallen as much as 0.7 percent, but after data showing
German GDP growth falling and UK inflation slowing, the greenback pared
some losses.
"After the big rally, at this point there isn’t any near-term catalyst
for further upside. But if we have a solid U.S. retail sales number
today, that could further support the dollar," said ING's chief EMEA
currency strategist, Petr Krpata, in London, referring to data due at
1330 GMT.
"This is more of a stabilization (than a change in direction), because
the moves have been quite large, but equally we've already seen that
plenty has been priced in, in terms of this reflation story from the
U.S. So the bar for further dollar upside is higher at this point."
Having hit an 11-month low of $1.0709 on Monday, the euro climbed 0.3
percent to $1.0766.
"The market is getting a little bit cautious," said Commerzbank currency
strategist Esther Reichelt in Frankfurt. "There might be some concern
that the Fed gets more cautious due to the strong dollar (or) this might
just be...a pause to see how other market participants are reacting to
dollar strength."
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A packet of former U.S. President Abraham Lincoln five-dollar bill
currency is inspected at the Bureau of Engraving and Printing in
Washington March 26, 2015. REUTERS/Gary Cameron/File Photo
"But in general I don't see this momentum changing. We see three rate
hikes by the end of 2017."
Still, rises in implied volatilities on currency pairs such as
euro/dollar and dollar/yen suggest market players are also wary of the
possibility of a sudden fall in the dollar despite its spectacular gains
over the last few days, said Kazushige Kaida, head of forex trading at
State Street in Tokyo.
The onshore Chinese yuan fell to its weakest level in nearly eight
years, breaking through 6.85 per dollar.
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