Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar heads for best fortnight vs. yen since 1988

Published 11/18/2016, 07:41 AM
Updated 11/18/2016, 07:41 AM
© Reuters. Sheets of Lincoln five dollar bill are fanned out at the Bureau of Engraving and Printing in Washington

© Reuters. Sheets of Lincoln five dollar bill are fanned out at the Bureau of Engraving and Printing in Washington

By Jemima Kelly

LONDON (Reuters) - The dollar powered to its highest levels since 2003 against a basket of currencies on Friday, with Donald Trump’s victory in the U.S. presidential election helping to give the greenback its best fortnight against the yen in almost 30 years.

Further underpinning the dollar was a speech by Federal Reserve Chair Janet Yellen, who on Thursday provided a signal that U.S. interest rates would rise next month, in line with most market participants' expectations.

The greenback hit a six-month high against the yen of 110.925 <JPY=>. It has gained around 7 percent in the last two weeks against the Japanese currency, its strongest showing since January 1988 and its second-strongest performance in the era of floating exchange rates.

The dollar index, which measures the currency against a basket of six major rivals, hit 101.37 (DXY), its highest since early April 2003.

"What we're looking at is a broad shift of investment back to the U.S.," said Richard Cochinos, Citi's head of G10 currency strategy in London.

"There are expectations for tax cuts next year - which were part of the Trump campaign's promises - and then there's also the idea of what type of fiscal boost are you going to have. That's what’s driving asset prices - it's people's expectations for the fiscal impulse next year," he said.

Cochinos added that political and economic worries in Europe, Britain and Japan were keeping investors away from those currencies, providing the dollar with another boost.

While Yellen did not explicitly say the Fed would take action at its Dec. 13-14 policy meeting, she told a Congressional committee that a rate hike was likely "relatively soon".

Thursday's U.S. data gave even more credence to December rate-hike bets, with housing starts marking a nine-year peak, weekly jobless claims falling to a 43-year low and consumer prices posting their biggest increase in six months.

Markets are now pricing in a more than 90 percent chance of a rate hike by the end of the year, according to CME FedWatch.

"The new U.S. policy mix suggests that more Fed hikes have to be priced," said Societe Generale (PA:SOGN) currency strategist Olivier Korber in Paris.

"With lasting policy uncertainty and potential protectionism, there are probably enough ingredients to consider the risk of massive new dollar appreciation. If the negative political surprises don't stop there and have a far more dramatic impact on Europe, the euro could fall much more."

The euro - which is facing a slew of political risks, including an Italian constitutional referendum next month and French and German elections next year - hit an 11-month low of $1.0582 <EUR=> before recovering to trade flat on the day at $1.0620.

The single currency is on track to record its weakest fortnightly performance against the dollar in 20 months.

China's yuan - which is on track for its biggest yearly falls since 1994 - hit a fresh eight-year low. [CNY/]

© Reuters. Sheets of Lincoln five dollar bill are fanned out at the Bureau of Engraving and Printing in Washington

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.