May 18, 2018 / 2:50 PM / 3 months ago

FOREX-Dollar climbs to five-month peak as euro falls on Italy worries

    * 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, adds comment, FX table, changes byline,
dateline; previous LONDON)
    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 gained for five straight sessions and
is on track for a 1.3 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, believes 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." 
    The euro on Friday was headed for its fifth successive
weekly decline versus the dollar, its first such fall since
2015.
    Europe's single currency has fallen about seven cents in
three weeks amid a sharp dollar rally and concerns about the
outlook for Italy's next government.
    The far-right League and 5-Star Movement have agreed on a
governing accord that would slash taxes and ramp up welfare
spending.
    Ratings agency DBRS warned on Thursday that the economic
proposals of the anti-establishment parties could threaten
Italy's sovereign credit rating.
    In mid-morning trading, the euro fell to a five-month low of
$1.1753. It has declined nearly 1.2 percent versus the dollar
this week and dropped against the Swiss franc, which
typically attracts capital in times of uncertainty.
    "The possibility of a eurosceptic government in Rome is
shaking investor confidence ... at this point a larger fiscal
deficit and greater bond issuance (in Italy) does seem likely,"
said David Madden, a strategist at CMC Markets.
    A founding member of the EU and the euro, Italy accounts for
15.4 percent of eurozone GDP and the Italian parties' hostility
toward the European Union is the biggest challenge to the bloc
since Britain voted to leave two years ago.
    A powerful rally by the dollar is also hurting the euro.
    On Friday, the dollar set a fresh four-month high against
the yen and was up 0.1 percent, buoyed 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. They cited the U.S. budget
deficit, which is projected to balloon to more than $1 trillion
in 2019, and would contribute to a 5 percent drop in the dollar
index over the next 12 months.
    
    ========================================================
    Currency bid prices at 10:23AM (1423 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar      EUR=        $1.1761        $1.1793     -0.27%         -1.96%      +1.1822     +1.1751
 Dollar/Yen       JPY=        110.8900       110.7600    +0.12%         -1.58%      +111.0700   +110.7300
 Euro/Yen         EURJPY=     130.44         130.62      -0.14%         -3.51%      +131.1200   +130.2900
 Dollar/Swiss     CHF=        0.9992         1.0013      -0.21%         +2.56%      +1.0018     +0.9987
 Sterling/Dollar  GBP=        1.3466         1.3515      -0.36%         -0.33%      +1.3528     +1.3456
 Dollar/Canadian  CAD=        1.2894         1.2804      +0.70%         +2.52%      +1.2910     +1.2791
 Australian/Doll  AUD=        0.7498         0.7509      -0.15%         -3.88%      +0.7528     +0.7489
 ar                                                                                             
 Euro/Swiss       EURCHF=     1.1754         1.1811      -0.48%         +0.56%      +1.1817     +1.1753
 Euro/Sterling    EURGBP=     0.8732         0.8726      +0.07%         -1.70%      +0.8753     +0.8723
 NZ               NZD=        0.6902         0.6875      +0.39%         -2.60%      +0.6915     +0.6875
 Dollar/Dollar                                                                                  
 Dollar/Norway    NOK=        8.1257         8.1193      +0.08%         -0.99%      +8.1473     +8.1115
 Euro/Norway      EURNOK=     9.5597         9.5779      -0.19%         -2.93%      +9.6035     +9.5605
 Dollar/Sweden    SEK=        8.7498         8.7325      -0.07%         +6.70%      +8.7671     +8.7170
 Euro/Sweden      EURSEK=     10.2940        10.3009     -0.07%         +4.62%      +10.3235    +10.2920
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Tom Finn in London
Editing by Chizu Nomiyama)
  
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