LONDON, Dec 16 (Reuters) - Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.
"The dollar is our currency, but it's your problem" - the famous words of U.S. Treasury Secretary John Connally to European finance ministers in 1971. It's a vastly different world today, but with the greenback on a tear they resonate almost half a century later. The dollar this week hit a 14-year high on a trade-weighted basis and against the euro (euro/dollar parity is now only a few cents away) and an eight-year high against the Chinese yuan. It's also up 17 percent against the Japanese yen since the November presidential election. This week's U.S. rate hike may only have been the second in a decade, but the Fed is clearly pulling away from the rest of the world's major central banks. More rate hikes next year are pencilled in, while the ECB, BOJ and BoE will all still be in QE mode. The world's largest FX reserve holders are dumping U.S. bonds at an increasing pace (pushing yields even higher), in part to limit the fall in their own currencies' value, while Gulf countries and some emerging markets have raised rates in response. The strains are building. Fed effect smashes euro to 14-year low as dollar soars Fed lifts rates, sees faster pace of hikes in Trump's first year Three Gulf c.banks hike rates to avert currency pressure after Fed move Japan tops China as world's largest holder of U.S. Treasuries
With the long-awaited Federal Reserve rate hike out of the way, the last hurrah of major central banks this year is likely to be the Bank of Japan's two-day policy meeting ending on Dec. 20. Economists polled by Reuters to keep its negative interest rates and its 0 percent target for 10-yeat government bond yields on hold. Instead, the focus is likely to be on the BOJ's outlook for the economy. The dollar's surge, fuelled by Donald Trump's election to the U.S. presidency and the Fed's updated rate outlook, have seen the yen tumble, increasing Japanese exporters' competitiveness. People familiar with BOJ thinking say the central bank is more open to discussing raising the target rate for 10-year yields if long-term rates keep rising.
* POLL-BOJ to negative interest rates, leave JGB yield target unchanged
* EXCLUSIVE-Inside the BOJ, rate hikes are back on the radar. Really
* Japan manufacturers' mood brightens to 1-yea- BOJ
Italy has barely got a government in place, seemingly avoiding a protracted political deadlock, and the euro zone is lurching towards another familiar crisis, this time in Greece. Greek Prime Minister Alexis Tsipras has infuriated international lenders with a Christmas bonus for pensioners that threatens to torpedo its short-term debt relief plan. With his support sliding, Tsipras badly needs the support of politically powerful pensioners to help him stage another big confrontation with lenders who are demanding more austerity. Investors in Greek government bonds, which have enjoyed the best returns of any euro zone sovereign debt this year, may be in for another bumpy ride. Sliding in polls, Greece's Tsipras seeks pensioners' support
Greece snubs lenders, approves Christmas bonus as Europe divided Greece is the word for 2016 euro zone bond returns
The Czech central bank meets at the end of the coming week, with markets looking for further clues to when it will end its policy of keeping the crown weak. Recent comments from central bankers have indicated the cap on the crown, designed to boost inflation, could be scrapped in the middle of 2017. Preventing the crown strengthening to less than 27 per euro is costing the central bank billions of euros in monthly intervention. A pick-up in inflation has persuaded many analysts there will be no further delay in lifting the cap, especially as the growing Czech economy attracts speculative inflows. Czech cenbank balance sheet suggests pause in interventions in early December Czech cbank's Hampl: mid-2017 most likely timing to end interventions Czech inflation jump cements outlook for end of weak-crown policy despite ECB
Fresh jitters over the health of the world's second biggest economy have inflicted severe pain on Chinese assets over the past week: The yuan crashed through the 6.95 per dollar threshold to an 8 1/2-year low. Shanghai stocks saw the biggest weekly loss in eight months while Hong Kong markets' losses are the biggest in six months. Chinese 10-year treasury futures tumbled the maximum allowed 2 percent on Thursday - their biggest daily fall on record - and sustained their biggest week of losses since January. In a sign of stress in interbank markets, the seven-day Shanghai Interbank Offered Rate (SHIBOR) hit a 19-month high. To soothe nerves, Beijing's central bank administered a larger-than-expected liquidity injection. But investors will be closely watching for further signs of pressure and scrutinise data, with China house price data due on Monday. China to strictly limit property speculation in 2017 - Xinhua China's money rates spike this week, but injection eases pressure ANALYSIS-China cedes top U.S. creditor crown to Japan as yuan struggles
Compiled by Nigel Stephenson, editing by Larry King