Dollar soars to 14-year highs on Fed, Trump plans

NEW YORK (Reuters) - The U.S. dollar surged to a 14-year high against a basket of major currencies on Thursday, on investor anticipation of a more hawkish Federal Reserve and a boost in U.S. economic growth under President-elect Donald Trump.

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The dollar index, which measures the greenback against a basket of six major rival currencies, rose to a roughly 14-year high of 103.560, on track for the biggest daily percentage gain in nearly six months.

The dollar’s gains, which put it close a 14-year high against the euro and nearly a 10-1/2-month high against the yen, comes a day after the Fed raised interest rates for the first time in a year and signaled it was likely to increase them three more times in 2017, up from the two increases forecast at the central bank’s September meeting.

A increase, 25 basis points, was widely expected by financial markets, but the signal that rates are likely to rise at a faster-than-expected pace surprised investors and continued to fuel gains in the dollar on Thursday.

Analysts said the dollar was also gaining on expectations that the Trump administration’s economic plans, including fiscal stimulus via infrastructure spending, would complement the Fed’s pace of rate increases and boost the dollar further.

“There is more belief that monetary policy will be tightened now that fiscal policy is likely to be more expansionary,” said Vassili Serebriakov, a currency strategist at Credit Agricole in New York.

The dollar was last up 0.9 percent against the yen JPY= at 118.11 yen after rising as much as 1.4 percent to 118.66 yen, its highest since early February. The euro was down 1.2 percent at $1.0406 after falling as much as 1.6 percent to $1.0367, its lowest since January 2003.

Barclays expects the euro to reach parity with the dollar by the third quarter of 2017 and then to fall below $1, while JP Morgan Asset Management expects the two currencies to become equal in the first quarter of next year.

The euro’s weakness accelerated after it broke below its 2015 low, since sell orders were likely triggered to prevent euro investors from suffering further losses, said Kathy Lien, managing director at BK Asset Management in New York. The euro’s last multi-year low was mid-March of 2015, when it touched $1.0456.

The dollar hit 1.0344 Swiss francs, its highest against the currency since August 2010 CHF=.

Reporting by Sam Forgione; additional reporting by Jemima Kelly in London; Editing by Meredith Mazzilli and Steve Orlofsky