Currencies

Dollar index rises to 14-year high, pullback expected

Frank van den Bergh | E+ | Getty Images

The dollar climbed to a near 14-year high against a basket of currencies on Wednesday, even as analysts cautioned the greenback is vulnerable to a letdown from its surge tied to bets on pro-growth policies under U.S. President-elect Donald Trump.

The euro deteriorated to its weakest level in almost a year against the greenback. Trump's stunning victory on Nov. 8 has raised concerns about a rising tide of potentially destabilizing wins for populist candidates and issues on ballots across Europe in the coming year.


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"The market has gone a bit too far ahead of itself. It looks vulnerable for a short-term pullback," said Mazen Issa, senior currency strategist at TD Securities in New York.

Weaker-than-forecast data on U.S. producer prices and industrial production on Wednesday pinned Treasury yields near their 10-month peaks and put a cap on the dollar.

The reached 100.57, which was its highest since April 2003 before retreating to 100.46, up 0.2 percent on the day. It has risen 3.5 percent over eight days, which would be the biggest such increase since May 2015.

While traders have increased their expectations on the Federal Reserve raising interest rates at its Dec. 13-14 policy meeting, the dollar rally may cause Fed policy-makers to reconsider such a move because of its repercussions on U.S. exports, analysts said.

On Thursday, Fed Chair Janet Yellen will testify before the Congress' Joint Economic Committee at 10 a.m. EST (1500 GMT) where she might raise concerns about the dollar's surge.




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"Anything (Yellen says) that expresses caution won't be taken lightly by markets," Issa said.

U.S. interest rates futures implied traders saw about a 91 percent chance the Fed would raise the target range on policy rates to 0.50-0.75 percent next month, CME Group's FedWatch showed.

Pressured by traders' conviction on a U.S. rate hike and political worries about Europe, the euro fell below $1.07 for the first time since the start of December 2015.

The dollar gained 0.13 percent to 109.29 after rising to 109.75 yen, its highest since June 1.

"Under Trump, we are looking at fiscal policy divergence (with Europe and Japan) which should be very positive for the dollar. Protectionism is a risk, but if that is focused on emerging markets, it may perversely also be a dollar positive," said Adnan Akant, head of foreign exchange at Fischer Francis Trees and Watts, a New York-based institutional currency manager owned by BNP Paribas.