Dollar dips after soaring to 11-month highs

LONDON : 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, but 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. 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 half a percent to 99.662.

Having hit an 11-month low of $ 1.0709 on Monday, the euro climbed 0.6 percent to $ 1.0805 EUR=.

“The market is getting a little bit cautious… In all exchange rates we are seeing some important levels for the U.S. dollar,” 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. But in general I don’t see this momentum changing. We see 3 rate hikes by end of 2017,” she added.

The yen also gained half a percent to trade at 107.98 per dollar JPY=, having hit a five-month low of 108.545 the previous day, but analysts said it was likely to continue to weaken.

“Given the massive increase in U.S. bond yields, the dollar is within sight of testing 110 yen,” said Minori Uchida, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.

Technical charts also point to the potential for further dollar strength against the yen, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

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 CNY=CFXS fell to its weakest level in nearly eight years, breaking through 6.85 per dollar.

Sweden’s crown hit a three-week high of 9.7960 per euro EURSEK=D4 after data showed Swedish consumer prices rose 1.2 percent compared with the same month last year.