FOREX-Trumped-up dollar pauses for breath

29/11/2016 07:45 AST

The dollar steadied against a basket of major currencies on Monday along with U.S. Treasury yields, taking a pause for breath after rallying sharply in the aftermath of Donald Trump's surprise victory in the U.S. presidential election.

The greenback had surged more than 4 percent against a basket of currencies in the wake of the election earlier in the month, with investors reckoning a Trump administration would see an expansion of fiscal policy, boosting inflation and pushing up interest rates.

But after hitting an almost 14-year-high of 102.05 on Thursday, the dollar dipped on Friday and added to those losses on Monday, with the index edging down 0.1 percent to 101.52 as 10-year U.S. Treasury yields steadied.

The greenback fell as much as 1.2 percent to 111.865 yen , having soared more than 8 percent in the wake of Trump's victory to its highest levels in eight months against the safe-haven Japanese currency, but it had recovered most of those losses by 1255 GMT and was down 0.4 percent at 112.75 yen.

Most analysts, though, said the dip in the dollar since Friday should not be interpreted as any kind of reassessment of the U.S. outlook, but simply as a corrective pullback. The greenback is still on track for its strongest two-monthly gains since early 2015.

"It's month end and we've had a huge move - this feels to me like it's a pause," said Societe Generale macro strategist Kit Juckes in London. "It looks much more like a correction than anything else - a Monday morning clearing of the decks before the end of the month."

The euro climbed as much as 1.1 percent against the greenback to an 11-day high of $1.0686, benefiting from the dollar's broad weakness and also boosted by the election of Francois Fillon as the centre-right candidate in next year's French presidential elections.

The reformist former prime minister is now favourite to become president, with a flash opinion poll showing he would easily beat National Front leader Marine Le Pen in a run-off second round. Markets worry that the far-right Le Pen, who has promised a referendum on membership of the European Union if she wins, would threaten the future of the currency bloc.

"He has been able to achieve quite a clear majority in the primaries so he's now quite a strong candidate going into the elections next year," said UBS currency strategist Daniel Trum, in Zurich.

By 1255 the euro was up just 0.1 percent on the day at $1.0585. Societe Generale's Juckes said the poll had only shown the likely outcome if Fillon reached the second round of the French election and that if a left-wing candidate were to face Le Pen in the final round, the outcome was less certain.

The dollar could face some resistance this week ahead of potentially risk-laden events such as the midweek Organization of the Petroleum Exporting Countries (OPEC) meeting, and Italy's Dec. 4 referendum on constitutional reform, which could rattle markets by prompting the country's government to resign.

The Peninsula