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LSE: Dollar hits 4-month low vs yen on "Trumpflation trade" rethink
 
* Weak stocks pressure dollar by driving down U.S. yields

* Euro edges down from 7-week high vs dollar

Investors concerned by healthcare vote, FBI investigation

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

By Jemima Kelly

LONDON, March 22 (Reuters) - The dollar hit a four-month low against the safe-haven yen on Wednesday as a risk-off mood took hold across markets, with investors rethinking the "Trumpflation trade" that had pushed the greenback to a 14-year peak and stocks to record highs.

Shares on Wall Street fell by the most since before Donald Trump's election on Tuesday, as investors worried the U.S. president would struggle to deliver his promised tax cuts and infrastructure.

The cautious mood continued into Asian and European trading, with stocks and U.S. Treasury yields sharply lower, eroding the interest-rate allure of the dollar, which hit a seven-week low of 99.62 against a basket of major rivals in Asian trading, before recovering to trade flat by 1200 GMT.

Against the yen, which investors traditionally flock to during times of risk aversion, the dollar fell as much as 0.6 percent to 111.13 yen, with nervousness deepening ahead of a key healthcare vote in U.S. Congress on Thursday.

Investors are also worried by an FBI investigation into possible ties between Trump's presidential campaign and Russia as Moscow sought to influence the 2016 U.S. election, which was confirmed on Monday.

"The mood is being driven by this realisation that Trump is not going to be able to deliver all his promises – perhaps not even most of them," Societe Generale currency strategist Alvin Tan, in London, said, citing the healthcare vote and FBI investigation as key among investors' concerns.

The U.S. currency has also felt pressure from a resurgent euro in recent days, on growing expectations of a tightening in European Central Bank monetary policy this year, and on bets that the anti-euro candidate Marine Le Pen will be defeated in the French presidential elections.

But the euro slipped back from a seven-week high above $1.08 on Wednesday, trading down 0.2 percent on the day at $1.0787 .

"What we’ve had in the last few days is a very significant shift in the view on the euro because of the pricing in of possible ECB rate hikes quite early...but we need more confirmation on it for the euro to go further because this is a story that is still a bit fragile," said Commerzbank's head of currency research in Frankfurt, Ulrich Leuchtmann.

"We can't be sure that core inflation in the euro zone will really pick up, therefore we cannot be sure if the ECB will really be motivated to normalize interest rates soon."

Dollar bulls were disappointed last week when the U.S. Federal Reserve hiked interest rates as expected but did not signal a faster pace of future tightening, as many had anticipated, which was also keeping the greenback under pressure, analysts said.
Source