Dollar reverses post-election rally

Tokyo - The dollar fell against its major peers for the first time since Donald Trump won the US presidency.

The US currency also dropped from a five-month high versus the yen amid speculation its gains since the November 8 election were too rapid.

The dollar’s rally, which was underpinned by bets that Trump’s policies will stoke inflation, pushed it into overbought territory versus its Japanese counterpart for the first time this year and led to concern the incoming government will view the greenback’s strength as a threat to the economy.

“The post-election trends in bonds, equities, commodities and currency markets have all run out of steam overnight, at least temporarily,” said  Kit Juckes, a London-based strategist at Societe Generale.

“While the market can pause here, it’s way too early to stop being bullish on the dollar.”

Speculation that the next US president will spur price growth by boosting spending set off a surge in Treasury yields, which peaked Monday with the 10-year yield premium over Japanese bonds at an almost three-year high of 2.27 percentage points.

That helped the dollar climb versus the yen. Even with today’s declines, the US currency is up versus all but one of its 31 major peers over the past week, while the market-implied chance of a Federal Reserve interest-rate increase next month has surged above 90%.

The dollar fell 0.2% to ¥108.19 as of 12:10 after it reached ¥108.54, the strongest level since June 3. The euro climbed 0.6% to $1.0800, halting a six-day decline.

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, declined 0.4%. It surged 2.8% last week, the most since September 2011, and on Monday erased its losses for this year.

Taking profit

“Market participants seem to be unwinding their positions to take profit,” said Hirofumi Suzuki, an economist at the treasury department of Sumitomo Mitsui Banking in Singapore.

The probability of a December rate hike by the Fed rose to 92%, from 84% on the day of the US election, according to fed fund futures compiled by Bloomberg. Richmond Fed President Jeffrey Lacker said on Monday that a more stimulative fiscal outlook usually warrants higher policy rates.

“US authorities may not like to see the dollar rise this far as it’s at a level that could weigh on the economy,” said Hiroshi Kurihara, chief US economist at Bank of Tokyo-Mitsubishi UFJ in New York.

“There should be caution about expectations for fiscal policies that will raise growth or inflation sharply, and there is scope for markets to face a bit of a correction.”

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