* Dollar gains on prospects of Fed scaling back stimulus
* Strategists foresee dollar trending higher this year
* Yen, Swiss franc may gain on more emerging mkt turbulence
By Anooja Debnath
LONDON, June 21 The dollar retreated from a
two-week high against a basket of major currencies on Friday but
was still likely to clock its best weekly gains in a year on
expectations of an eventual end to ultra-loose U.S. monetary
After two straight days of sharp gains, some speculators
booked profits on the dollar's rise. That helped the euro to
recover from a two-week low struck on Thursday.
But the euro's gains looked shaky as interest rate
differentials are moving in favour of the dollar. Also, a rise
in bond yields in southern European countries, given a global
bond market sell-off, is compounding the euro zone's problems.
The re-emergence of Greece's political turmoil on Friday is
also keeping investors on edge and a worsening of the situation
could trigger a slide in the single currency.
The dollar rallied and assets like stocks and bonds fell on
Wednesday after Federal Reserve Chairman Ben Bernanke said the
economy was improving enough for the central bank to begin
scaling back its monthly $85 billion in asset purchases.
Against the currency basket the dollar stood at 81.816
, below Thursday's two-week high of 82.145, though it was
still up 1.4 percent for the week.
"I see a continuation of the trend of a stronger dollar. An
improved set of U.S. macro fundamentals and likely tapering (by
the Fed) by the end of the year will benefit it," said Neil
Jones, head of hedge fund FX sales at Mizuho Corporate Bank.
Analysts said expectations of the Fed slowing the pace of
its stimulus led to confusion over where investors ought to
store their assets and this will also likely help the dollar.
"Players will likely park (assets) in the dollar until we
have got a little more clarity about where the world is going
... dollar is benefiting from that and I sense it will continue
to do so," Jones said.
Against the dollar, the euro was steady at $1.3222,
but well below Wednesday's four-month peak of around $1.3418.
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, most 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 0.3 percent against the yen to 97.55 yen
, still near its 98.29 yen top hit on Thursday.
"Among G-10 currencies, we see the dollar as the most
popular," said Yujiro Goto, FX strategist at Nomura. "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."
There are concerns, however, that 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 Swiss franc, traders said.
Yields on 10-year U.S. Treasuries rose to their highest
since August 2011 after Bernanke's comments on Wednesday.