US Dollar Continues To Do Well Against Major Currencies

The recent win by Donald Trump in the U.S Presidential elections has resulted in the dollar surging to an 11-month high. The currency retained its recent upward trajectory on the back of higher U.S. bond yields and expectations of heightened inflation within the U.S. due to Trump’s victory.

The dollar’s rally has been seen across all major currencies. China’s yuan fell to its lowest since its launch in 2010 while both euro and the yen dropped to fresh lows for the year. Currencies of those countries involved in the Trans Pacific Partnership (TPP) came under particular pressure since Trump has strongly opposed the trade treaty.

The euro fell by a full percentage to $1.07285 but later settled at $1.0766. The 10-year yields rose by 11 basis points reaching a 10 month high of 2.3 percent in Europe.

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In a statement, Jane Foley Rabobank strategist said

I think people were just pausing for breath. The rise higher in yields, coupled with the fact that people have been reducing dollar longs for most of this year, has really played into this. It is really setting the tone for all other markets

The primary motive for these currency movements is mostly due to the fact that the markets expect the Trump administration to boost spending and introduce new restrictions on trade. These moves could put an end to the low rate of inflation that has prevailed in developed economies. Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo said that with Trump yet to reveal specific policy measures, there were no surprises that the dollar continued to remain high.

Deutsche Bank analysts are predicting that the dollar would hit their target of $1.05 per euro by the year end. According to Deutsche Bank strategist George Saravelos, the greenback was approaching a sweet-spot in the rally.

Overall, there is still uncertainly as to what the new U.S administration will mean for other world economies. For now however, it has eased the pressure on the safe harbor currency yen, helping the Bank of Japan. Currency analyst Lee Hardman said that more than trade restrictions, right now higher U.S. yields will boost USD/JPY rates.

In case of China, markets are still betting on the currency without examining the underlying situation according to experts. Foley pointed out that while debt in China remained high; there was no understanding of how the Chinese government would respond to U.S trade protectionism. He said that the market was currently ignoring the possible tactics that Beijing might adopt including selling of U.S. Treasuries.

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