Dollar near 3-m high
The dollar hovered near a 3-1/2-month high versus the yen yesterday, after making big gains overnight as the markets prepared for a Donald Trump presidency that could stimulate the US economy fiscally and lift interest rates. The US currency dipped slightly to 106.610 yen after surging to 106.950 yen overnight, its highest since July 21. The greenback was set to end the week with a 3.3 percent gain against its Japanese peer, which was initially expected to emerge on the winning end due to its perceived safe-haven status upon a Trump victory in the US presidential elections.
The fast pace of the dollar’s appreciation against the yen prompted a response from Japan’s Finance Minister Taro Aso, usually known to make statements when the currency pair moves in the opposite direction. “It is exceptional for the yen to move 5 yen (against the dollar) in two days,” he told reporters, stressing the importance of market stability.
The dollar had slumped briefly towards 101 yen on Wednesday when the Republican candidate, feared by the markets as an unknown entity, edged out Democrat Hillary Clinton. But the currency has rallied hard since, along with an ebb in broader risk aversion accompanied by a surge in US yields amid expectations that Trump’s policies would boost spending and inflation.
“The 20 to 30 basis jump in Treasury yields has been the biggest booster for the dollar. It’s been euphoria in the market over the past few days, although dollar/yen might have a tough time cracking 107 for now following finance minister Aso’s comments,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.
She added the dollar has also drawn support as expectations that the Federal Reserve may not hike interest rates in December following a Trump win has dissipated. Trump’s plans call for massive tax cuts and infrastructure building which could increase the US budget deficit. US long-dated Treasury yields have duly risen to their highest in more than 10 months. “Should the US reflation trade gain traction and longer dated US Treasury yields move higher in an orderly manner (potentially accompanied by tighter Fed policy), this is likely to send dollar/yen higher,” wrote currency strategists at ING.