(Updates after the start of European trading)
* Dollar boosted after Fed ups 2017 rate hike projections
* Dollar/yen hits 10-mth high, euro/dollar hits 21-mth low
* Focus on if further rise in USD prompts warning by
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Dec 15 The dollar surged to its highest
levels in 14 years on Thursday, after the Federal Reserve hinted
that U.S. interest rates could rise faster in 2017 than
investors had been anticipating, and hiked rates for the first
time in a year.
The 25-basis point increase in the central bank's benchmark
interest rate had been widely expected by financial markets; it
was its signal that rates were likely to rise three times in
2017 - up from twice at the Fed's September meeting - that
investors latched onto and drove the greenback higher.
The Fed's policy meeting was the first since the U.S.
election victory of Donald Trump, who investors expect to drive
up inflation and boost growth with a programme of huge fiscal
The dollar jumped after the Fed statement late on Wednesday
and built on those gains on Thursday, climbing as much as 0.8
percent against a basket of major peers to hit 102.62,
its highest since early 2003, as U.S. Treasury yields surged.
At least five of 17 Fed policymakers appeared to have
boosted their interest rate outlook since September, according
to the new "dot plot" of rate projections. But not all traders
and analysts viewed the Fed's statement as hawkish.
"The macroeconomic forecast is unchanged...and the dots have
shifted only very slightly - the median dots went up by 25 basis
points but the average only went up 6 basis points," said UBS
Wealth Management's head of currency strategy, Thomas Flury, in
"Yellen pointed out that uncertainties are exceptionally
high, and we know that when uncertainties are high the Fed is
more moderate than hawkish. So from the Fed's perspective the
communication was fairly neutral."
Against the yen, the dollar jumped as much as 0.7 percent on
the day to hit 117.87, its strongest since February.
Analysts said Japan might now step up verbal warnings
against excessive yen declines versus the dollar.
The dollar is on track for easily its strongest quarter
against the Japanese currency in over 20 years, after a more
than 16 percent climb since the start of October.
"I doubt that Fed can actually raise interest rates three
times next year. Last year they planned to have four rate hikes,
but ended up raising only once," said Daisuke Karakama, chief
market economist at Mizuho Bank in Tokyo.
The allure of higher U.S. yields took a toll on emerging
Asian currencies, with the Chinese yuan hitting its
lowest levels in more than eight years.
The euro hit a 21-month low of $1.0468, close to its 2015
low of $1.0457 - the weakest since 2003.
The Norwegian crown surged 0.6 percent to 8.9715 crowns per
euro after the country's central bank marginally
raised its prediction for borrowing costs in 2019.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Jemima Kelly; Editing by Angus MacSwan)