Dol­lar dips on bond yields, Thanks­giv­ing hang­over

Kuwait Times - - BUSINESS -

LON­DON:

The dol­lar re­treated against its ma­jor peers yes­ter­day, a pull­back in US bond yields spurring some profit-tak­ing as the world’s main cur­rency headed for its best run in al­most two years.

Ex­pec­ta­tions of rises in US in­fla­tion and in­ter­est rates have driven the green­back to a more than 6 per­cent gain over Oc­to­ber and Novem­ber, its strong­est show­ing over a sim­i­lar pe­riod since early 2015. Most cur­rency play­ers ex­pect the gains to con­tinue, but the com­bi­na­tion of Thanks­giv­ing, the pro­cess­ing of cor­po­rate flows be­fore the month-end and per­ceived risks loom­ing for mar­kets in the first half of De­cem­ber led some to cash in gains now.

The Aus­tralian and New Zealand dol­lars also both got some help from rises in iron ore prices and bullish trade fig­ures re­spec­tively. “US yields gapped higher at open but we have been un­able to hold those gains and that has en­cour­aged some prof­ittak­ing,” Jeremy Stretch, CIBC head of cur­rency strat­egy in Lon­don, said.

“There is a de­gree of con­sol­i­da­tion (but) there is still a con­sis­tent bias that means the dol­lar will re­main pretty much sup­ported into the Fed meet­ing next month. The mes­sage seems to be take some profit and we will be look­ing to go again.”

Af­ter hit­ting an 8-month high of 113.90 yen in Asian trad­ing, the dol­lar was down 0.4 per­cent on the day at 112.94 yen, still on track for a more than 2 per­cent gain on the week.

The euro rose al­most half a per­cent to $1.0592 af­ter drop­ping to $1.0518 on Thurs­day, its low­est since March 2015. “The euro’s in­dulging in a bit of ... short-cov­er­ing, and I sup­pose it can ben­e­fit from quiet, thin mar­kets,” So­ci­ete Gen­erale strate­gist Kit Juckes said.

“At the very least, dol­lar-yen is a buy on dips in this en­vi­ron­ment. Our tar­get is 120 next year, but our 114 fore­cast for March could be reached a week af­ter we re­vised it. If this move con­tin­ues at the re­cent pace, the whole 2017 USD rally might have been done by the time 2017 even be­gins.”

Emerg­ing mar­ket eq­ui­ties and cur­ren­cies have been hit hard by the spec­tre of higher US in­ter­est rates and the prospect of U.S. trade pro­tec­tion­ism un­der Pres­i­dent-elect Don­ald Trump.

The Turk­ish lira, for ex­am­ple, slumped to a record low even as its cen­tral bank raised in­ter­est rates for the first time in nearly three years on Thurs­day. The lira was hurt as Euro­pean Union law­mak­ers called for a tem­po­rary halt to EU mem­ber­ship talks with Ankara. Some ex­pect a fur­ther sell-off in emerg­ing mar­kets to even­tu­ally re­vive de­mand for the flag­ging yen, nor­mally a go-to cur­rency in times of mar­ket tu­mult, along with the Swiss franc. — Reuters

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