The dollar maintained its gains on Friday after the Federal Reserve earlier in the week signaled more interest-rate increases are likely in 2017, boosting the U.S. currency to a nearly 14-year high against the euro.
Since the U.S. election in early November, the dollar has strengthened broadly on expectations for President-elect Donald Trump’s fiscal stimulus and stronger U.S. growth.
The dollar advanced further this week after the U.S. central bank lifted rates on Wednesday and raised its projection to three rate increases in 2017 from two previously.
The ICE U.S. Dollar Index DXY, +0.05% was little changed near 103. The index, which measures the buck against a basket of six rivals, so far had twisted higher and lower on the day.
On Thursday, the euro EURUSD, -0.0096% fell below the important support level of $1.0500, hitting its lowest level since January 2003.
The euro was at $1.0447, compared with $1.0415 late Thursday in New York. Against its Japanese counterpart, the dollar USDJPY, +0.04% was at ¥118.212, up from ¥118.17 late Thursday. The British pound GBPUSD, +0.0483% was at $1.2427, compared with $1.2420.
Osao Iizuka, head of foreign-exchange trading at Sumitomo Mitsui Trust Bank, said the dollar was likely to trend higher, though there was risk to its continued strength in the longer run.
“[Trump] hasn’t said anything clearly on what he is going to do. Once questions arise about if he can really implement policies to improve the economy, the dollar could be sold,” he said.
The market is focused on whether the Bank of Japan will contain domestic bond yield gains going forward. If it does, a wider interest-rate differential between the U.S. and Japan would mean more money flows into dollar-denominated assets. The BOJ currently targets a 10-year rate of around zero.
On Wednesday, the BOJ moved to arrest fast-rising domestic yields by saying it would buy more long-term government bonds than at previous operations. It offered to buy the revised amount at Friday’s operation.