* Euro dips 0.2 percent to $1.0431 after Friday's spike
* Expectations of Trump tax cut, higher rates boost dollar
* Aussie up on firm Caixin survey
By Patrick Graham
LONDON, Jan 3 The U.S. dollar racked up its
biggest rise in two weeks in 2017's first full day of European
trading on Tuesday, as dealers and investors in London returned
to push the greenback to within 1 percent of December's
One of January's big question-marks, China's yuan, was also
proving more stable in its more freely traded offshore markets,
a bullish survey of manufacturing purchasing managers helping it
0.1 percent higher and also supporting the Australian dollar.
A bout of year-end profit-taking had halted progress in the
index used to measure the U.S. currency's strength against a
basket of its peers and weakened it to as much as $1.07 per
It rose 0.6 percent on the day on Tuesday to trade at 102.87
against the index, compared to a 14-year high of 103.65 hit on
Dec. 20. It strengthened 0.2 percent to $1.0431 per euro and 0.4
percent to 118 yen, its highest in two weeks.
Analysts with some of Europe's biggest banks argued for a
resumption of the gains that have led the greenback sharply
higher since elections in early November on expectations Donald
Trump will provide a boost to public spending and growth.
"In the near term the market should probably pick up where
it left off, we're certainly seeing that in dollar-yen for
example this morning," said Barclays' G10 currency strategist
"The past fortnight wasn't a period that materially changed
the trend that was dominant into the end of the year and it is
hard to see the data or the Fed minutes this week changing
A holiday in Japan thinned trade in Asia, but the yuan
gained 0.1 percent in offshore markets after the Caixin/Markit
survey showed Chinese factory activity picked up more than
expected in December, with output reaching a near six-year high.
The greenback has been on the rise since September, but its
jet higher since Trump's election has prompted speculation of an
attack on parity with the euro.
Treasury yields have jumped in anticipation of more U.S.
government borrowing and higher Federal Reserve interest rates
at a time when central banks in the euro zone and Japan are
working to keep their short-term yields in negative territory.
U.S. two-year debt pays 200 basis points (bps)
more than German debt and 138 bps more than Japanese bonds.
"Following a period of consolidation between now and late
January, we believe the USD will put on another 10 percent of
gains over the next eighteen months," said Richard Grace, chief
currency strategist at CBA.
Grace argued that Trump's proposed plans for a U.S. company
tax cut could be particularly bullish for the dollar since it
would likely encourage a wave of repatriation by domestic firms
and demand for U.S. equities by foreign investors.
"We anticipate some twelve-to-eighteen months of USD
strength, beginning when the Trump Administration gets its tax
cuts through the Congress," he added, citing late March as
likely timing for passage.
(Additional reporting by Wayne Cole in SYDNEY; Editing by