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RPT-FOREX-Dollar heads for best week in a year

Published 11/11/2016, 08:39 pm
Updated 11/11/2016, 08:40 pm
© Reuters.  RPT-FOREX-Dollar heads for best week in a year
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(Repeats to additional subscribers)

* Expectations of stimulus, inflation under Trump boost dollar

* USD/JPY on track to gain 3.3 pct on the week as US yields soar

* Mexican peso still stuck near record lows

* Other emerging currencies also feel the pinch of Trump's win

By Patrick Graham

LONDON, Nov 11 (Reuters) - The dollar was on course for its best week in a year on Friday, racking up another round of gains against the Chinese yuan and Mexican peso and steadying just off the previous day's highs against the euro and yen.

Expectations of rising U.S. inflation if President-elect Donald Trump delivers on promises to boost public spending and put barriers on cheap imports have driven Treasury yields higher and boosted the dollar since his victory on Tuesday.

The gains have come almost across the board, with the exception of a recovering British pound, and the greenback was another 0.1 percent higher against the basket in morning trade in Europe.

There are doubts, however, whether the momentum will continue into next week and the gains were focussed on the two currencies expected to suffer most from Trump's promises on trade tariffs, protectionism and immigration controls.

China fixed the yuan another 0.2 percent lower at 6.8120 per dollar and less-tightly controlled offshore rates reached as high as 6.85, pointing to expectations of more losses. The peso MXN=D4 was down another 1 percent to a record low of 20.89 per dollar.

"Emerging markets to the sword is the chatter," said Richard Benson, co-head of portfolio investment with currency managers Millennium Global in London.

"The question is whether the bond rout that we've seen lasts next week. It is pretty hard for U.S. stocks to keep rising when emerging is getting whacked. Or for the dollar to perform against the yen if risk assets come under proper pressure."

The dollar dipped around a quarter of percent from highs of close to 107 yen hit on Thursday. It was marginally stronger on the day at 1.0881 per euro, a third of a cent off the previous session's 3-1/2 month high.

The greenback was set to end the week with a more than 3 percent rise against its Japanese peer. It has gained almost double that from lows hit on U.S. election night before it became clear Trump was heading for victory.

Analysts from Goldman Sachs (NYSE:GS), who had been forced to back off one of the market's best-known bullish dollar calls, said in a note overnight they expected the greenback to add to its gains.

"Many (are) asking if dollar strength in recent days can extend," they said. "We think so and see the election as something of a "reset."

Goldman are among those who have called for a rise to parity with the euro. The note gave no details of current forecasts.

The fast pace of the dollar's appreciation against the yen prompted a response from Japan's Finance Minister Taro Aso, usually known to make statements when the currency pair moves in the opposite direction.

"It is exceptional for the yen to move 5 yen (against the dollar) in two days," he told reporters, stressing the importance of market stability. New Zealand dollar remained on the back foot after the country's central bank cut interest rates on Wednesday. The kiwi slipped 0.2 percent to $0.7198 NZD=D4 , poised to lose nearly 2 percent this week.

The Australian dollar, sensitive to swings in risk appetite, was down 0.2 percent at $0.7598 AUD=D4 and on track for a 1 percent weekly drop.

(Editing by Toby Chopra)

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