(Updates prices, adds JP Morgan note, more comment)
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Feb 13 The dollar hit a two-week high
against the yen on Monday as investors focused again on the U.S.
reflation trade which dominated the aftermath of Donald Trump's
election in November but has stalled this year.
All eyes are fixed on testimony by Federal Reserve chief
Janet Yellen this week after signs that other policymakers at
the U.S. central bank are leaning towards more hikes in interest
rates this year than the two currently priced in by markets.
That would help the dollar and reports that Trump did not
even discuss the currency or its strength at weekend talks with
Japanese premier Shinzo Abe did likewise.
The new president drove the greenback to its strongest gain
since mid-December last week by promising a "phenomenal" tax
reform for U.S. companies. Investors hope that signals the focus
of day-to-day commentary is shifting away from trade
protectionism and security, and towards economic growth.
"Is Trumpflation back with a vengeance? Probably investors
will want to wait but it does seem that all of the cards for
another bull run for the dollar may be falling back into place,"
said Viraj Patel, a strategist with Dutch bank ING in London.
"There can only be upside risk going into Yellen's testimony
The dollar was up half a percent at 113.72 yen in morning
trade in London, having reached as high as 114.17 yen in
Asian trading. It was steady against the euro at $1.0638
and around 0.4 percent lower at $1.2534 to sterling.
Yellen will testify in Congress on Tuesday and Wednesday
after giving markets little new to go on when the bank upgraded
its inflation views earlier this month. The latest U.S. producer
inflation numbers are due before she speaks on Tuesday and are
followed by consumer price data a day later.
"Markets are pricing only a 22 percent probability of a
March Fed move, the question is whether she wants to nudge it
closer to fifty percent," said Nick Parsons, head of currency
strategy at National Australia Bank in London.
"The economics all suggest the dollar should be moving
higher but the politics don't always play along to the same tune
and we have the president's Twitter feed to contend with."
China's yuan was also a mover overnight, weakening in
the face of the dollar's strength at the end of last week to hit
its lowest in a month.
The yuan is expected to fall further this year and another
bleed of Beijing's FX reserves last week has analysts debating
whether a more dramatic weakening is on the cards. It fell as
low as 6.8838 per dollar in offshore trade on Monday.
"Following the Jan/Feb correction, we still expect some
modest broad dollar strength to unfold over the first half of
this year," JP Morgan said in a monthly report.
"But we have trimmed the extent of dollar strength from
already relatively modest expectations, now only expecting the
dollar index to peak 3.3 percent stronger by mid-year from
For Reuters 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 Shinichi Saoshiro in TOKYO and Marc
Jones in LONDON; Editing by Keith Weir and Richard Lough)