Euro, yen fall as dollar momentum builds again

LONDON: The euro was back under pressure on Friday after an extension of the European Central Bank's programme of money-printing drove its biggest daily loss against the dollar since Britain's vote to leave the European Union in June.

While the ECB said it would reduce the monthly value of purchases, they will continue until at least the end of next year - longer than the market expected - and were accompanied by a handful of other measures judged as negative for the single currency going forward.

That drove a more than 2-cent fall on Thursday, and the euro fell another half percent in morning trade in Europe, reaching $1.0563, putting it within half a cent of this year's lows and a cent of longer term lows at which the dollar's rally topped out last year.

The dollar also gained almost 1 percent against the yen to top 115 yen for the first time since February. "Obviously we had the ECB yesterday and there is still some momentum after that. The dollar has also risen against the yen this morning," said Josh O'Byrne, a strategist with Citi in London.

"We're constructive into the end of the year.

The market has potentially more room to price higher inflation next year, dollar rates should pick up on the back of that and that should support the dollar."

There is debate over the nature of the slowdown of the dollar's rally in the past 10 days.

Most major investment houses forecast the US currency to be strong next year on the back of promised measures on growth and taxation from a Trump administration.

But there is more hesitancy about where gains will be focussed; many think betting against the Chinese yuan or South Korean won may make more sense than the euro.

Roger Hallam, chief investment officer for currency management with JP Morgan Asset Management in London said he would expect the dollar to reach $1.02-1.03 per euro although he was not persuaded of forecasts for it to pass parity.

"We are still pretty positive on the dollar. We think Trump will be quite supportive for growth next year and we think the market is underpriced for (rises in interest rates by) the Fed," he said.

"There has been a huge amount of dollar selling in the past week so I don't think people are as long of the dollar as they might like to be." A rise in Federal Reserve interest rates next week seems fully priced in to markets, and it may take a more bullish signal on further rises next year from Fed chair Janet Yellen to provoke more gains.

But US interest rates are already far higher than the equivalents in Japan and Europe and the broader economic and policy outlook still also points in opposite directions.

The dollar index was up 0.4 percent on the day at 101.53 after a 1 percent rise on Thursday, on track to gain just under 0.5 percent on the week.