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Tokyo - The dollar advanced for a fourth day on bets higher spending under Donald Trump’s administration will boost economic growth and inflation, convincing the Federal Reserve to raise US interest rates.
A gauge of the US currency climbed to the highest since February as President-elect Trump unveiled key administrative appointments as he prepares to take power in January.
Thirty-year Treasury yields rose above 3% for the first time since January on expectations inflation will accelerate. The yen dropped to a five-month low against the dollar as Japan’s third-quarter economic growth exceeded forecasts, damping demand for the currency as a haven.
“The dollar is strengthening along with the rise in US yields, reflecting expectations for economic expansion from fiscal spending,” said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura in Tokyo. “Japan’s 2% growth can be used as a reason for the BOJ not lowering interest rates for a while.”
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0.4% as of 08:43, after reaching the highest level since February 3. The gauge surged 2.8% last week, the most since September 2011.
The yen declined 0.9% to ¥107.59/$ after reaching ¥107.63/$, the weakest level since June. The euro fell 0.6% to $1.0790 per dollar.
Trump’s unexpected victory, along with the looming exit of the UK from the European Union, is clouding growth prospects in the eurozone, 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, according to recent surveys.
Understanding Trump
“This week is about understanding what are Donald Trump’s policy priorities,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “It’s about fiscal stimulus, infrastructure spending on one hand; on the other hand, trade protection. We need to understand how much emphasis he’s going to place on either of those.”
Traders see an 84% chance the Fed will increase rates at its December meeting, up from 76% odds on the Friday before last week’s presidential election, according to data compiled by Bloomberg based on futures.
“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.
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