NEW YORK: The US dollar hit fresh highs against the euro not touched in nearly 29 months on Monday as traders expecting tighter monetary policy in the United States compared to other economies saw little reason to halt this year's rally in the greenback.
The euro fell to $1.2142 against the dollar, its lowest level in nearly 29 months, on the continued belief that the Federal Reserve may raise interest rates as soon as next year while other economies are putting looser policies into effect.
Divergence between the Fed's path toward rate hikes, which are expected to boost the dollar by driving investment flows into the United States, and stimulative policies in Europe, Japan, and Switzerland have helped the dollar gain nearly 13 percent this year against a basket of major currencies.
"The dollar bull rally isn't over yet," said Kathy Lien, managing director at BK Asset Management in New York.
Traders saw little reason to reverse that trade heading into year-end, especially given the potential for volatility amid thin trading volumes.
The Japanese government's approval on Saturday of a $29 billion stimulus package also reinforced bets that the dollar will benefit from tighter policies.
The latest Japanese stimulus was unveiled two weeks after a massive election victory by Prime Minister Shinzo Abe's ruling coalition gave him a fresh mandate to push through his "Abenomics" stimulus policies.
"Abenomics is back on track," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.
The dollar had earlier slipped against the euro after traders took profits on short euro positions following an anticipated failure in Greece to elect a new president, which put the country's bailout program at risk. Activity was thin ahead of the New Year holiday, with many traders having closed out positions.
Japanese markets will be shut from Wednesday to Friday and will reopen next Monday.
The euro was last down 0.2 percent against the dollar at $1.2151.
The dollar was last up 0.22 percent against the yen at 120.67 yen.
The dollar was up 0.21 percent against the Swiss franc at 0.9898 franc.
The dollar hit a 29-month high against the franc of 0.9907 franc.
The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.20 percent at 90.21 after hitting a fresh, nearly nine-year high of 90.265. On Wall Street, the benchmark S&P 500 stock index closed up 0.09 percent.
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