* Dollar sinks to 5-week low below 114 yen
* Broader dollar index heading for worst week since U.S.
* Commodity currencies outperform, led by Canadian dollar
* Euro nearing December highs, up for third week running
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Jan 12 The dollar sank to a five-week
low below 114 yen on Thursday and was on course for its worst
week since November, hit by a loss of confidence in the U.S.
reflation trade which has dominated markets since Donald Trump's
Speculators had driven the dollar higher on Wednesday in
expectation that Trump's first news conference since his victory
on Nov. 8 would give more detail on new fiscal spending and tax
measures to repatriate U.S. corporate capital held overseas.
Instead, the event was dominated by debate over Russian
hacking and unsubstantiated claims that he had in the past been
caught in a compromising position in Moscow. U.S.
Treasury yields fell to their lowest since November in early
deals in Europe on Friday.
"For the moment I would stop short of drawing broader
conclusions. I think he will still implement his policy
platform," said Lee Hardman, a currency economist with Japan's
MUFG in London.
"But he has failed to provide a fresh catalyst for the
reflation trade. That has led to the positions on the dollar
continuing to correct this morning."
The greenback fell as low as 113.75 yen, its weakest
since Dec. 8, and down 1.2 percent on the day.
The dollar index, which tracks the U.S. currency against a
basket of six major counterparts, fell another 0.8 percent to
100.98. It had risen to a one-week high on Wednesday.
The euro gained 0.6 percent to $1.0645 after skidding to a
14-year low of $1.0340 last week.
While some investors who missed out on the dollar's
post-election rally were still looking to buy on dips, others
were seeking to pare their long dollar positions in case the
coming reality of Trump's administration fails to live up to
expectations, market participants said.
But there has also been a broadly stronger tone to
commodities-linked currencies like the Canadian and New Zealand
dollars. The former hit its highest since October in
early trade in Europe and the kiwi gained around 1 percent.
Javier Corominas, head of research at London-based fund
Record Currency Management, said he also saw signs of growing
risks to the dollar against the euro in European economic data.
"One thing is the market is not pricing in the potential
upside in European growth this year," he said.
"The soft data has been positive and we have the impact of a
weaker euro this year. That could have implications for ECB
tapering, potentially, and a back up in the euro interest rate
curve, which would potentially trigger (euro) appreciation."
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
(Additional reporting by Lisa Twaronite; Editing by Toby