* Dollar near 14-yr high vs euro, basket of major currencies * Dollar/yen near 10 1/2-month peak after BOJ * Markets pin hopes on Trump fiscal policy for now.
The dollar hovered near a 14-year high against the euro on Wednesday, supported by expectations of US interest rates rising more rapidly during the incoming Trump Administration. In thin trading ahead of year-end holidays, the euro last stood at $1.0413 after slipping below $1.0352 on Tuesday, a level last seen in January 2003.
The weak euro helped to push the dollar's trade-weighted index against a basket of six major currencies to touch 103.65, also a 14-year high. The index was last at 103.30. "The dollar looks pretty strong. Although there are no fresh trading factors as we head into Christmas, we see dollar buying whenever the currency slips," said Shinichiro Kadota, chief forex strategist at Barclays. "We haven't seen anything that could change its Trump-driven rally," he added.
The dollar index has risen 5.8% since Trump was elected. He has pledged big tax cuts and spending increases and threatened to impose tariffs on imports from China and Mexico. Investors rushed to US assets as they bet his expansionary fiscal policy will boost US growth, inflation and interest rates. The dollar was at 117.67 yen, coming within reach of its 10 1/2-month high of 118.66 touched on December 15.
Selling in the yen gathered pace after the Bank of Japan maintained its policy settings on Tuesday and when Governor Haruhiko Kuroda doused talk the BOJ might consider raising the target for the 10-year bond yield next year. Kuroda also said he did not see recent yen falls as a problem for Japan's economy, noting that a weak currency helps accelerate inflation by boosting import costs. "The markets took Kuroda's comments as rather tolerant to the weaker yen," said Yunosuke Ikeda, chief FX strategist at Nomura Holdings in Tokyo. "Kuroda's remark encouraged the yen selling, as well as the widening US-Japan interest rate differentials. Investors tend to make money from carry trade when markets are relatively quiet ahead of Christmas holidays," added Ikeda.
With central banks in Europe and Japan committing to very loose monetary policies, investors continued to pile into the dollar. The Federal Reserve, which hiked rates last week, signalled three more increases next year, versus its previous projection of two. US Treasury yields rose after Fed Chair Janet Yellen's upbeat labour market comments on Monday reinforced convictions of more frequent US interest rate hikes next year.
The benchmark 10-year Treasury yield last stood at 2.566%, within the sight of a 27-month-high of 2.641% hit last week. The British pound fell to one-month low of $1.2313 on Monday, pressured by renewed uncertainty over the process by which Britain will leave the European Union. Looking ahead, traders are casting an eye on Italy's troubled bank Monte dei Paschi di Siena, which needs to raise 5 billion euros ($5.2 billion) by the end of the year to avoid being wound up by the European Central Bank.
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