Dollar hoisted higher as U.S. yields rise on Trump bets

EghtesadOnline: The dollar held near 13 1/2-year highs against a currency basket in Asian trading on Monday, as investors stuck with bets that President-elect Donald Trump's administration would adopt expansionary fiscal policies that will lead to higher interest rates.

News ID: ۷۳۸۱۶۳

21 November 2016

The dollar index, which tracks the U.S. unit against a basket of six rivals, added 0.1 percent to 101.31, after adding more than 4 percent last week to mark its biggest weekly rise since March 2015. It notched a high of 101.48 on Friday, its highest since April 2003, according to Reuters.

The dollar rose to 111.190 yen, its highest since early June. It was last up 0.2 percent at 111.09 as investors positioned ahead of U.S. Thanksgiving holiday later in the week. Tokyo markets will also be shut for a public holiday on Wednesday.

Expectations that a Trump presidency will usher in higher inflation and lead to faster-than-expected Federal Reserve interest rate increases have helped power the U.S. currency.

"The dollar-yen uptrend remains intact, but the pace of the rise could be slower," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo, who predicts the pair to trade in a 109.50-112 range this week.

"It's very hard to sell the dollar against the yen, in the current situation, beyond a certain level," he said.

The dollar surged as yields on Treasuries of all maturities marked their largest two-week gains in more than five years as investors dumped U.S. government debt after the Nov. 8 U.S. presidential election.

The yield on U.S. benchmark 10-year Treasury notes rose to a one-year high of 2.364 percent on Friday. It last stood at 2.342 percent, compared to its U.S. close of 2.337 percent.

"The market is buying the dollar and selling U.S. Treasuries, and it seems this trend may continue because we don't know the details of 'Trumponomics,' and we will not have it until after the 20th of January next year," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"Until then, investors need to follow the trend," he said, adding, "We might see some correction ahead of Thanksgiving."

Data from the Commodity Futures Trading Commission released on Friday showed that speculators trimmed their dollar bets in the week through Nov. 15, as profit taking reduced net long positions after they had risen seven straight weeks.

Japanese yen net longs, meanwhile, posted their lowest level since early June, the data showed, with the yen a casualty of the dollar's strong rally.

Also underpinning the greenback, most market participants expect the U.S. Federal Reserve to raise interest rates at its Dec. 13-14 policy meeting.

On Thursday, Fed Chair Janet Yellen told a congressional panel that a rate increase was likely "relatively soon."

James Bullard, a voting member of the U.S. central bank's rate-setting committee, said last week that the Fed will raise U.S. interest rates in December barring a major shock, such as global market volatility or bad U.S. jobs data.

The euro inched up slightly to $1.0593 but remained not far above Friday's 11-month low of $1.0569.

The Australian dollar shed 0.2 percent to $0.7324, having touched a five-month nadir at $0.7311.

China's yuan weakened to near its lowest in 8 1/2 years. The official midpoint guided by the People's Bank of China (PBOC) was set weaker for a 12th consecutive day at 6.8985 per dollar prior to market open on Monday, compared with the previous fix 6.8796.