Dollar heads for best
fortnight vs. yen since 1988
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[November 18, 2016]
By Jemima Kelly
LONDON
(Reuters) - The dollar powered to its highest levels since 2003 against
a basket of currencies on Friday, with Donald Trump’s victory in the
U.S. presidential election helping to give the greenback its best
fortnight against the yen in almost 30 years.
Further underpinning the dollar was a speech by Federal Reserve Chair
Janet Yellen, who on Thursday provided a signal that U.S. interest rates
would rise next month, in line with most market participants'
expectations.
The greenback hit a six-month high against the yen of 110.925 <JPY=>. It
has gained around 7 percent in the last two weeks against the Japanese
currency, its strongest showing since January 1988 and its
second-strongest performance in the era of floating exchange rates.
The dollar index, which measures the currency against a basket of six
major rivals, hit 101.37 <.DXY>, its highest since early April 2003.
"What we're looking at is a broad shift of investment back to the U.S.,"
said Richard Cochinos, Citi's head of G10 currency strategy in London.
"There are expectations for tax cuts next year - which were part of the
Trump campaign's promises - and then there's also the idea of what type
of fiscal boost are you going to have. That's what’s driving asset
prices - it's people's expectations for the fiscal impulse next year,"
he said.
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Cochinos added that political and economic worries in Europe, Britain
and Japan were keeping investors away from those currencies, providing
the dollar with another boost.
While Yellen did not explicitly say the Fed would take action at its
Dec. 13-14 policy meeting, she told a Congressional committee that a
rate hike was likely "relatively soon".
Thursday's U.S. data gave even more credence to December rate-hike bets,
with housing starts marking a nine-year peak, weekly jobless claims
falling to a 43-year low and consumer prices posting their biggest
increase in six months.
Markets are now pricing in a more than 90 percent chance of a rate hike
by the end of the year, according to CME FedWatch.
"The new U.S. policy mix suggests that more Fed hikes have to be
priced," said Societe Generale currency strategist Olivier Korber in
Paris.
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Sheets of former U.S. President Abraham Lincoln on the five-dollar
bill currency are fanned out at the Bureau of Engraving and Printing
in Washington March 26, 2015. REUTERS/Gary Cameron
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"With lasting policy uncertainty and potential protectionism, there are
probably enough ingredients to consider the risk of massive new dollar
appreciation. If the negative political surprises don't stop there and
have a far more dramatic impact on Europe, the euro could fall much
more."
The euro - which is facing a slew of political risks, including an
Italian constitutional referendum next month and French and German
elections next year - hit an 11-month low of $1.0582 <EUR=> before
recovering to trade flat on the day at $1.0620.
The single currency is on track to record its weakest fortnightly
performance against the dollar in 20 months.
China's yuan - which is on track for its biggest yearly falls since 1994
- hit a fresh eight-year low. [CNY/]
(Additional reporting by Tokyo markets team, editing by Larry King)
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