Dollar pauses after Trump rally, backs off nearly 14-year high

NEW YORK (Reuters) - The dollar fell on Monday along with U.S. Treasury yields, surrendering some gains from the sharp rally following Donald Trump’s surprise victory in the U.S. presidential election.

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The greenback had surged more than 4 percent against a basket of currencies in the wake of the Nov. 8 election, with investors expecting a Trump administration to bring an expansion of fiscal policy, boosting inflation and pushing up interest rates.

The index hit an almost 14-year high of 102.05 on Thursday before falling on Friday and slipping further to 101.32 on Monday.

“The last few days of November and the first few days of December will be chock full of risk events, so that’s provided a convenient backdrop to take profit on the dollar’s big rally,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Other factors, such as a drop in U.S. Treasury yields and a packed economic calendar this week, also contributed to the dollar rally’s halt.

Investors will be looking to the release of U.S. third-quarter gross domestic product data as well as consumer confidence and a reading on consumption early on Tuesday. That will kick off a week of key economic indicators culminating with the November jobs report on Friday.

“We would need to see solid prints to sustain the dollar’s buoyant run,” Manimbo said.

The greenback fell 1.6 percent to 111.32 Japanese yen overnight. However, it pared about half of those losses on Monday, and was last down 0.75 percent at 112.38 yen.

Boris Schlossberg, BK Asset Management’s managing director of FX Strategy, wrote in a client note that the dollar-yen dive was prompted by President-elect Trump’s tweets over the weekend in which he claimed, without evidence, that “illegal” votes were responsible for him losing the popular vote to Democratic challenger Hillary Clinton.

“The blatant lie without any proof - and one that has been roundly challenged by all of the country’s voting experts - was unprecedented in American politics and may have made some market traders doubt Mr. Trump’s stability,” Schlossberg said in the note.

The euro EUR= climbed to an 11-day high of $1.0686, boosted by the election of Francois Fillon as the centre-right candidate in next year's French presidential elections.

The euro retreated from those gains by the start of North American trading. It was last up 0.1 percent against the dollar at $1.0595.

Reporting by Dion Rabouin; Additional reporting by Jemima Kelly in London and Shinichi Saoshiro in Tokyo; Editing by Andrea Ricci and Richard Chang