A gauge of the U.S. currency climbed to the highest since February, extending its biggest weekly gain in five years, as President-elect Trump unveiled key administrative appointments in preparation for taking power in January. Thirty-year Treasury yields rose above 3 percent for the first time since January on expectations inflation will accelerate.
While higher-yielding assets advanced, the yen dropped to a five-month low against the dollar. Japan’s better-than-forecast third-quarter economic growth added to speculation that global expansion will pick up, damping demand for the yen as a haven.
“The Trump win is playing out as a major boost for the dollar,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA’s corporate- and investment-banking unit in London. “The key risk to the rally remains the Fed’s willingness to tolerate further aggressive tightening in the U.S. financial conditions. Time and time again, too-rapid dollar gains were standing in the way of aggressive Fed hikes.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.8 percent to the highest since Feb. 3 as of 6:30 a.m. in New York. The gauge surged 2.8 percent last week, the most since September 2011.
The yen depreciated 1.1 percent to 107.84 per dollar and earlier reached the weakest level since June.
“The dollar may continue to rally against the yen toward the middle of the 108 level given expectations for Trump’s economic policy,” said Kenji Yoshii, a foreign-exchange strategist at Mizuho Securities in Tokyo. The rally may pause around the time of the Fed’s December meeting as investors look for clues for future policy, he said.
The euro fell 0.8 percent to $1.0768, approaching its 2016 low of $1.0711 set in January, as Europe’s single currency remained under pressure since U.S. elections. Trump’s unexpected victory is clouding growth prospects in the euro zone, together with the looming exit of the U.K. from the European Union, Jens Weidmann, a member of the European Central Bank’s governing council, said in Berlin last week.There will be a referendum in Italy and elections in France, the Netherlands and Germany in the next 12 months. Support for populist parties in Europe is rising.
Traders see an 84 percent chance the Fed will increase rates at its December meeting, up from 76 percent the Friday before last, according to data compiled by Bloomberg based on fed fund futures. Higher interest rates tend to support a currency as it boosts demand.
“The Fed will need to hike rates in 2017 by more than we originally thought likely a couple of weeks ago,” said Mark Dowding, London-based partner and money manager at BlueBay Asset Management LLP, which oversees about $60 billion.