May 18, 2018 / 8:26 PM / in 5 months

FOREX-Dollar touches five-month peak as euro slides on Italy concerns

    * Euro struggles near $1.18 mark, as Italy woes grow
    * Dollar rise leaves yen at weakest since January
    * GRAPHIC-World FX rates in 2018: tmsnrt.rs/2egbfVh

 (Updates prices in text, table, adds analyst comment)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 18 (Reuters) - The dollar rose to a five-month
high against a basket of major currencies on Friday, helped by
weakness in the euro as investors fretted about political
uncertainty in Italy.
    The dollar index has climbed for five straight sessions,
posting a 1.2 percent weekly gain. It has risen 5 percent since
mid-February, with investors betting U.S. interest rates will
need to rise further to curb inflation.
    Shaun Osborne, chief FX strategist at Scotiabank in Toronto,
however, said the dollar's rally was more about extreme short
positioning that needed to unwind.
    "We continue to view dollar gains as a temporary issue
reflecting excessive short positioning and concerns European
growth momentum has slowed and may impair the ECB's (European
Central Bank) willingness to move away from quantitative easing
later this year," Osborne said. 
    The euro on Friday tracked its fifth successive weekly
decline versus the dollar, its first such fall since 2015.
    Europe's single currency has dropped about seven cents in
three weeks amid a sharp dollar rally. 
    Concerns have also mounted about the agreement between
Italy's far-right League and 5-Star Movement on a governing
accord that would slash taxes and ramp up welfare spending.

    In late trading, the euro fell to a five-month low of
$1.1753. It has declined nearly 1.2 percent versus the dollar
this week.
    The dollar index, meanwhile, rose to 93.83 on Friday, the
highest since mid-March.
    Piotr Matys, FX strategist at Rabobank in London, said based
on technical analysis it is possible that the dollar index had a
"valid bullish breakout."
    "It is reasonable to assume that the U.S. dollar index is
likely to revisit the next important tops at 94.219 and 95.149
in the coming weeks," Matys said. "A close above these levels
would strengthen the upside bias."
    On Friday, the dollar set a fresh four-month high against
the yen but was last flat at 0.1 percent, supported overall by a
further rise in U.S. Treasury yields that suggests
an upbeat outlook for the world's largest economy. 
    In a note to clients, however, strategists at Citibank said
the dollar rally would not last long, citing the U.S. budget
deficit, which is projected to balloon to more than $1 trillion
in 2019. That would contribute to a 5 percent drop in the dollar
index over the next 12 months.
    In the week ahead, investors are looking to Wednesday's
release of minutes from the Federal Reserve's latest monetary
policy meeting for clues about the pace of the current
tightening cycle.
    On Thursday, minutes from the last European Central Bank
gathering will also be released.
    
    ========================================================
    Currency bid prices at 1605 EDT (2005 GMT):
 Description      RIC        Last      U.S. Close  Pct       YTD Pct   High Bid  Low Bid
                                        Previous   Change    Change              
                                        Session                                  
 Euro/Dollar                 $1.1765   $1.1793     -0.24     -1.93     +1.1822   +1.1751
 Dollar/Yen                  110.7100  110.7600    -0.05     -1.74     +111.070  +110.610
 Euro/Yen                    130.28    130.62      -0.26     -3.62     +131.120  +130.250
 Dollar/Swiss                0.9976    1.0013      -0.37     +2.39     +1.0018   +0.9951
 Sterling/Dollar             1.3476    1.3515      -0.29     -0.27     +1.3528   +1.3456
 Dollar/Canadian             1.2878    1.2804      +0.58     +2.39     +1.2910   +1.2791
 Australian/Doll             0.7509    0.7509      +0.00     -3.74     +0.7528   +0.7489
 ar                                                                              
 Euro/Swiss                  1.1742    1.1811      -0.58     +0.45     +1.1817   +1.1731
 Euro/Sterling               0.8731    0.8726      +0.06     -1.71     +0.8753   +0.8723
 NZ Dollar/Dolar             0.6918    0.6875      +0.63     -2.37     +0.6918   +0.6875
 Dollar/Norway               8.1167    8.1193      -0.03     -1.10     +8.1473   +8.1034
 Euro/Norway                 9.5506    9.5779      -0.29     -3.03     +9.6035   +9.5443
 Dollar/Sweden               8.7563    8.7325      +0.03     +6.76     +8.7671   +8.7170
 Euro/Sweden                 10.3040   10.3009     +0.03     +4.73     +10.3235  +10.2900
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham)
  
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