May 17, 2017 / 2:23 PM / 3 months ago

FOREX-Safe-haven currencies soar on Trump uncertainty

* Swiss franc hits seven-week highs

* Yen rises to two-week highs

* Dollar index surrenders 'Trump bump' (Updates to U.S. market open; changes dateline, previous LONDON)

By Dion Rabouin

NEW YORK, May 17 (Reuters) - The dollar fell to its lowest level against the yen since May 1 and hit a six-month low against the Swiss franc on Wednesday as talk that U.S. President Donald Trump could face the threat of impeachment boosted safe-haven assets.

The dollar index, which tracks the U.S. currency against six peers and had scaled a 14-year peak of 103.82 on Jan. 3, fell 0.4 percent to its lowest level since Nov. 9, surrendering all of its "Trump bump" gains.

News emerged on Tuesday that Trump had asked his now-dismissed FBI chief James Comey to end the agency's investigation into ties between former White House national security adviser Michael Flynn and Russia.

That raised questions about whether Trump tried to interfere with a federal investigation, spurring speculation over the likelihood of an early exit from office for the former businessman.

The dollar fell by as much as 1.35 percent against the yen, blowing through the 112 yen level to 111.57 yen.

The dollar sank 0.5 percent against the Swiss franc, falling to its lowest since Nov. 9.

"It’s really a dollar story right now," said Peter Ng, senior FX trader at Silicon Valley Bank in Santa Clara, California. "Obviously it centers around the drama that’s going on in the White House that’s captivating audiences globally and you can see it’s causing a risk-off sentiment to the market."

While Wednesday's price action showed traders were losing faith in Trump's ability to push through his campaign trail promises of tax reform and fiscal stimulus, there was limited expectation that he would realistically face impeachment.

"Therefore, this (risk-off move) could be a bit short term," said Yujiro Goto, currency strategist with Nomura in London.

Analysts also said the market was losing some faith in the likelihood of the Federal Reserve raising U.S. overnight interest rates at its meeting next month. Higher rates make a country's currency more attractive to investors.

Fed fund futures showed the market was pricing in a 69 percent chance of a June hike, down from a more than 80 percent chance a week ago, according to the CME Group's FedWatch Tool.

The euro climbed above $1.11 overnight and hit $1.1129, its highest level since Nov. 9.

It fell 1 percent against the yen as investors locked in gains after the euro reached a 13-month high of 125.815 on Tuesday.

Reporting by Dion Rabouin; Additional reporting by Ritvik Carvalho in London; Editing by Meredith Mazzilli

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