January 12, 2017 / 3:40 PM / 6 months ago

FOREX-Dollar tumbles to five-week lows as Trump trade loses steam

3 Min Read

(Updates prices, adds comments; changes byline, dateline, pvs LONDON)

* Dollar sinks to 5-week low below 114 yen

* Broader dollar index heading for worst week since early Nov.

* Mexican peso rebounds from record low vs dollar

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Sam Forgione

NEW YORK, Jan 12 (Reuters) - The U.S. dollar hit its lowest level in five weeks against a basket of major currencies on Thursday and was on course for its worst week since November, hit by a loss of confidence in the U.S. reflation trade a day after a news conference by U.S. President-elect Donald Trump.

Speculators had driven the dollar index, which measures the greenback against a basket of six major currencies, to a one-week high Wednesday in anticipation that Trump's first news conference since his Nov. 8 victory would give more detail on new fiscal spending and tax measures to repatriate U.S. corporate capital held overseas.

Instead, the event was dominated by debate over Russian hacking and unsubstantiated claims that he had been caught in a compromising position in Moscow. The dollar index tumbled to 100.720 Thursday after touching, its weakest since Dec. 8 after touching 102.950 before the news conference Wednesday.

"Mr. Trump disappointed in not providing deeper details on his policy platform," said Joe Manimbo, senior market analyst with Western Union Business Solutions in Washington.

The dollar index had gained 4 percent between Trump's election victory and Wednesday on expectations that his promised policies would boost inflation and encourage the Federal Reserve to raise interest rates. The index is on track to fall 1.3 percent this week to mark its worst week since that ended Nov. 4.

The dollar weakened as much as 1.4 percent against the yen to 113.76 yen, its weakest level in five weeks, while the euro hit its highest in five weeks against the dollar of $1.0684 . Sterling hit a six-day high against the dollar of $1.2317, rebounding from a three-month low of $1.2038 touched Wednesday before Trump's news conference.

Even the Mexican peso rebounded against the greenback. The dollar was last down 0.7 percent against the peso at 21.7075 pesos. The peso broke the 22 peso-per-dollar mark for the first time on Wednesday and hit a record low of 22.0440 pesos after Trump said U.S. auto companies would face a high tax for products made south of the border during the press conference.

Analysts said it was unclear how long the dollar weakness would last.

"For the moment, I would stop short of drawing broader conclusions. I think (Trump) will still implement his policy platform," said Lee Hardman, a currency economist with Japan's MUFG in London. (Reporting by Sam Forgione; Additional reporting by Patrick Graham in London; Editing by Bill Trott)

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