The dollar surged to a near 14-year high before pulling back on Thursday, clocking up records against a range of other top world currencies and skittling emerging markets.
Stronger data from the world’s biggest economy had underpinned the greenback’s gains, which were further amplified by thinner volumes as US traders stayed away for the Thanksgiving holiday.
It was off its highs as Europe wound down but had earlier pushed its way past more of last year’s peaks against the euro to reach $1.0515, with only the March 2015 high of $1.0457 standing in the way of a drive towards parity.
The yen had skidded to an eight-month low and China’s yuan to an eight-and-a-half-year low, while the highly sensitive Turkish lira and Indian rupee hit new troughs as warning lights flashed in emerging markets.
In contrast to all the FX noise, European shares saw a broadly quiet day, with most of the main bourses inching up on gains from chemical and insurance sector stocks but capped by weaker banks.
German business confidence data showed firms remained unfazed, for now at least, by the US election win for Donald Trump and the political uncertainty bubbling in the eurozone.
However, the European Central Bank delivered an unusually downbeat message, warning that global political shifts could compound existing vulnerabilities to rising interest rates and revive worries about the eurozone’s weaker economies. ECB Vice President Vitor Constancio said the bank would be watching Italy particularly closely as it braces for a referendum on sweeping changes to its constitution next month.
It was enough to keep bond markets playing the transatlantic divide that has been widening again on bets that, while the United States may be about to raise interest rates, Europe is unlikely to follow suit for a couple of years.
The yield on Germany’s 10-year government bond, the benchmark for the region, fell two basis points (bps) to 0.26 per cent, while Italy, which has been plagued by its political concerns, outperformed with yields down 5 bps to 2.08 per cent.
Turkey’s lira and India’s rupee both sank to record lows. The lira was also buffeted by calls from European lawmakers to halt Turkey’s EU membership talks, though it clawed back some ground after the Turkish central bank raised one of its key interest rates for the first time since 2014.
MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.4 per cent, though the drop in the yen lifted the export-orientated Nikkei in Tokyo to a near 11-month high.
Hong Kong’s Hang Seng shed 0.2 per cent while higher metals prices lifted China’s blue-chip CSI300 index 0.4 per cent.
Oil prices were little changed amid all the dollar commotion and ahead of a planned Opec-led cut in crude production at a meeting on November 30.
US crude was up 10 cents at $48.08 a barrel and Brent was up a similar amount at $49.09.