* Dollar rallies on prospects of Fed scaling back stimulus
* Euro hits two-week low vs dollar; Greece turmoil returns
* Yen, Swiss franc may gain on more emerging mkt turbulence
By Wanfeng Zhou
NEW YORK, June 21 The U.S. dollar was headed for
its biggest weekly gain in almost a year against major
currencies on Friday after the Federal Reserve fueled
expectations of an eventual end to ultra-loose U.S. monetary
The euro fell to a two-week low against the dollar as
interest rate differentials moved in favour of the U.S. currency
and on a re-emergence of Greece's political turmoil.
The dollar surged and assets like stocks and bonds fell
after Fed Chairman Ben Bernanke said on Wednesday the economy
was improving enough for the central bank to begin scaling back
its monthly $85 billion in asset purchases. That prompted
traders to start pricing in an interest-rate hike in late 2014.
"We're very bullish right now on the U.S. dollar," said
Michael Woolfolk, senior currency strategist at BNY Mellon in
Woolfolk said the dollar is likely to gain regardless of Fed
actions on tapering. If the economy improves and the Fed cuts
back on its stimulus, the dollar will benefit from expectations
of higher interest rates. But if the Fed maintains stimulus
because the economy is weak, the dollar will rise on safe-haven
demand, he said.
Against the currency basket, the dollar rose to 82.271, the
strongest since June 6. It was last up 0.4 percent at 82.194 and
was on track for a weekly gain of 2 percent, the biggest since
early July, 2012.
Analysts said expectations of the Fed slowing the pace of
its stimulus also led to a degree of uncertainty in financial
markets, which will also boost the dollar.
"Players will likely park (assets) in the dollar until we
have got a little more clarity about where the world is going,"
said Neil Jones, head of hedge fund FX sales at Mizuho Corporate
Bank in London. "The dollar is benefiting from that and I sense
it will continue to do so."
The euro fell 0.5 percent to $1.3159, having hit a
two-week low of $1.3146.
Greece's Democratic Left party may pull out of Greece's
ruling coalition on Friday after talks to resume state
television broadcasts collapsed, plunging the nation into fresh
turmoil. The news sent the country's borrowing costs to their
highest since April.
Traders said with the yield gap between 10-year Treasuries
and German Bunds rising to its highest
since late April 2010 in favour of the former, investors were
looking to initiate fresh bets against the euro.
The last time spreads between U.S. Treasures and benchmark
German Bunds were at that level over three years back, the euro
started to fall from a high of above $1.34 to below $1.20.
The dollar gained 0.6 percent against the yen to 97.84 yen
, near its 98.28 yen top hit on Thursday.
"Demand from Japanese investors for Treasuries will pick up
and we are expecting the U.S. economy to keep growing. The Fed
is likely to start tapering (stimulus measures) in September and
this is very encouraging for dollar/yen," said Yujiro Goto, FX
strategist at Nomura.
Some traders said higher U.S. interest rates could prompt a
stampede out of emerging markets. Such a development could
favour traditional safe-haven currencies such as the yen and the