US dollar eases off 14-year peak as market braces for Trump reality check

[TOKYO] The US dollar stepped further away from a 14-year peak against a basket of currencies on Thursday, as investors locked in gains from its two-month-old rally since Donald Trump won the US presidential election.

The US dollar had soared following the election on Mr Trump's plans to cut taxes, boost fiscal spending and protectionist trade rhetoric, all seen as inflationary and lifting US bond yields.

But looming uncertainty on exactly what his presidency will be like is prompting some players to take off their bets on the US dollar for now, as his inauguration nears, with many market players focusing on his news conference next Wednesday.

The US dollar's index against a basket of six major currencies slipped to 102.20 after having hit a 14-year high of 103.82 on Tuesday, when a strong reading from a US manufacturing survey boosted the US currency.

The euro rose to US$1.0524, having recovered from a 14-year low of US$1.0340 touched on Tuesday.

The common currency was helped at the margin by data showing euro zone prices rose faster than expected in December and surveys suggesting business growth reached its highest in more than five years.

The US dollar slipped to 116.70 yen after having peaked at 118.605 on Tuesday, just shy of its 10-1/2-month high of 118.66 touched on Dec 15.

Some traders noted that there may have been selling by Japanese exporters after their New Year holidays.

The Australian dollar hit a two-week high of US$0.7303.

"Recent economic data is pretty good so markets are on risk-on mode overall and the dollar is supported. But US bond yields are being capped so the dollar is losing its driver to rally," said Yukio Ishizuki, currency strategist at Daiwa Securities.

US bond yields edged down on Wednesday, with the 30-year yield hitting a four-week low on Wednesday, even as the minutes from the Fed's last policy meeting showed almost all Federal Reserve policymakers thought the economy could grow more quickly because of fiscal stimulus under the Trump administration.

The Chinese yuan slipped a tad after it made its biggest daily gain in about a year in offshore trade on Wednesday, as Chinese authorities took steps to shore up the currency.

The Thomson Reuters/Hong Kong Exchange index of the offshore yuan hit its highest level in almost six months, though the index for onshore yuan still stood within its ranges of the past few weeks.

The offshore yuan gained 1.3 per cent on Wednesday, hitting a one-month high of 6.8658 per US dollar. It last stood at 6.8883.

"The price action was pretty big. I suspect it was propelled by unwinding of those who had made big bets against the yuan on speculation that capital outflows will continue under a strong dollar," Daiwa's Mr Ishizuki said.

REUTERS