The US dollar hit an 11-month peak against a basket of currencies yesterday as the risk of faster inflation and wider budget deficits sent Treasury bond yields shooting higher.
On Wall Street, the Dow Industrials set a record high led by financial stocks, on the expectation of looser regulations and consumer protections that could lift profits. Indexes turned negative in mid-morning trading, weighed by declines in the technology sector.
The dollar traded above the eye-catching 100 level against the world’s other major currencies. The euro slumped to its lowest versus the greenback since January and the yen was at its weakest since June.
The dollar has been romping ahead since Donald Trump’s win in the US presidential election last week triggered a massive selloff in Treasuries.
Mr Trump’s win also sparked expectations of similar victories in Europe in the coming months. Worries over a rising tide of nationalist sentiment and restrictions on trade across Europe put pressure on the euro, analysts said.
Yields on the US 10-year Treasury notes climbed to their highest since December at 2.302 per cent, while 30-year paper climbed above 3.06 per cent, also the highest since December. German 30-year yields touched their highest since March above 1.06 per cent, but gave up most of the day’s rise.
Though selling moderated in early North American trading, analysts said they see no end in sight for the overall move lower in bond prices and higher in yields.
The stampede from bonds has seen 30-year yields post their biggest weekly increase since January 2009 and the 50-basis-point move in 10-year bonds is the equivalent of two standard interest rate hikes.
The market has priced in a 77-per cent chance of a 25 basis points rate increase at the upcoming Federal Reserve meeting, scheduled for next month.
Bank stocks were the leading force on Wall Street, with the S&P 500 bank index touching its highest level since March 2008. However a drop in the biggest tech companies, which also carry the largest market capitalizations, kept the S&P 500 in negative territory.
The Dow Jones industrial average rose 16.27 points, or 0.09 per cent, to 18,863.93, the S&P 500 lost 3.56 points, or 0.16 per cent, to 2,160.89 and the Nasdaq Composite dropped 22.49 points, or 0.43 per cent, to 5,214.62.
Emerging market stocks hit their lowest since July and MSCI’s gauge of stocks across the globe fell 0.5 per cent. By contrast, Japan’s Nikkei jumped 1.7 per cent to its highest since February, boosted by a weaker yen.
In commodities, the strong US dollar put pressure on gold, which fell for a third consecutive session despite its appeal as an inflation hedge.
Copper rose 0.2 per cent after earlier gaining as much as 3.4 per cent.
In the oil market, Brent crude fell to its lowest in three months as the prospect of another year of oversupply and weak prices overshadowed chances that OPEC will reach a deal to cut output.
US crude was down 2.6 per cent at $42.30 a barrel and Brent last traded at $43.65, down 2.5 per cent on the day.