Dollar index rises to 14-year high, pullback expected

Dollar index rises to 14-year high, pullback expected

The dollar's rise moved in step with the surge in US yields as Trump's victory a week ago led traders to pile on bets he and a Republican-controlled Congress would embark on tax cuts and federal spending to boost the economy.

Speculation has grown that Trump's possible spending expansion and tax cuts will bolster the US economic growth and the Federal Reserve will raise rates in December and continue its tightening path next year.

While traders have increased their expectations on the Federal Reserve raising interest rates at its Dec 13-14 policy meeting, the United States dollar rally may cause Fed policy-makers to reconsider such a move because of its repercussions on USA exports, analysts said. The dollar was up 0.3 percent at 108.79 yen after advancing to a 5-1/2 month peak at 108.96 yen earlier Tuesday.

The greenback climbed against the yen as USA retail sales figures were stronger than forecast, while Federal Reserve Bank of Boston President Eric Rosengren said the central bank would tighten monetary policy faster with more fiscal stimulus.

The 10-year Treasury note yield rose to a 10-month high of 2.2 percent in Asia. The U.S. currency is up versus all 31 major peers tracked by Bloomberg except the British pound over the past week, while the market-implied chance of a Fed rate increase next month has climbed above 90 percent.

The euro was down 0.6 percent at $1.0793 after touching $1.0773, its lowest since early January.

The dollar index, which measures the greenback against six major currencies, was little changed at 100.06 after rising to 100.25 shortly after the retail sales report.

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It also rose 0.5 per cent against the yen to its highest since June, pushing the dollar index up a further 0.3 per cent to 100.53. It surged 2.8 percent last week, the most since September 2011, and on Monday erased its losses for this year.

The dollar has risen 3.5% over eight days, which would be the biggest such increase since May 2015. The median forecast in a Bloomberg survey called for a 0.6 percent gain.

But fueled by expectations of an inflationary push from the administration of President-elect Donald Trump that would spur more rises in Federal Reserve interest rates, it advanced past $1.07 per euro for the first time since the start of December 2015.

These factors reinforced the notion that the Fed will likely raise rates for the first time in a year at its December 13-14 policy meeting, analysts said. Richmond Fed President Jeffrey Lacker said Monday that a more stimulative fiscal outlook usually warrants higher policy rates.

Here's a closer look at the US dollar rate's huge climb and what it means for investors now...

"The retail sales number lifted the dollar but the currency probably would not have felt much impact even if the data was weak".

Before it's here, it's on the Bloomberg Terminal.

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