Dollar hits new high, Dow sets sights on 20,000

LONDON: The dollar hit a 14-year high yesterday as the yen fell after the Bank of Japan stuck to its ultra-loose monetary policy and the euro weakened following deadly attacks in Germany and Turkey.

On Wall Street, the Dow appeared set for another run at 20,000 points, as concern after the attacks in Europe were offset by reassurance over Italy’s plan to spend up to 20 billion euros ($21 billion) to rescue its troubled banks. On currency markets, a sense of caution after a truck ploughed into a Christmas market in Berlin, killing 12, sent the safehaven Swiss franc towards a six-month high versus the euro and pushed the common currency firmly back below $1.04.

But the dollar and rising bond yields again dominated, after the head of the Federal Reserve flagged the strength of the US jobs market in a speech to students on Monday. That sent the greenback up almost half a percent against a basket of major currencies to 103.65, its strongest since January 2003. Its gains were strongest against the yen, which slid around 1 percent after the Bank of Japan, shrugging off the yen’s recent slump, said it would keep monetary policy loose.

“The biggest impact you see from the attacks in Berlin and (Ankara) is the Swiss franc/euro,” said Societe Generale FX strategist Alvin Tan. “But apart from that the dollar continues to be strong after we had some rather positive comments from Janet Yellen.”

Benchmark 10-year US government bond yields, which set the bar for global borrowing costs and have been rising hand-in-hand with the dollar over the last few months, were at 2.57 percent having earlier topped 2.58 percent. The greenback has risen 12 percent versus the yen since Donald Trump’s surprise presidential election victory, on his promises of increased fiscal stimulus. The win was made official on Monday after he got the required Electoral College votes.

Fundamentals

Modest 0.3 percent gains for European shares came after MSCI’s broadest index of Asia-Pacific shares outside Japan had ended down 0.3 percent due fifth straight day of losses for emerging markets stocks. China’s CSI 300 index slid 0.6 percent, on Beijing’s move to tighten supervision of shadow banking activities and on liquidity concerns, while Japan’s Nikkei closed up 0.5 percent after a late BOJ-linked rally.

“There was no particular surprise from the policy meeting, but investors are happy that the economy’s fundamentals are finally rising after the BOJ expressed an upbeat view,” said Takuya Takahashi, a strategist at Daiwa Securities. Wall Street was expected to nudge higher having tailed off slightly on Monday as risk aversion set in following the deaths in Germany, the shooting dead of Russia’s ambassador in Turkey, and a gun attack in a mosque in Switzerland.

Chancellor Angela Merkel said of the attack in Berlin: “There is much we still do not know with sufficient certainty but we must, as things stand now, assume it was a terrorist attack.”

The lira initially rallied on relief that Moscow and Ankara struck a unified tone after the Ankara attack, but took a dive after the country’s central bank unexpectedly kept interest rates on hold having been widely forecast to raise them. The currency has lost 17 percent of its value against the dollar this year, hit by investor concerns about a crackdown by authorities in the aftermath of a failed coup in July and by a resurgent dollar following Donald Trump’s US election win.

The rouble though was up at 61.6554 per dollar and safe haven gold, which rose 0.4 percent on Monday, pulled back 0.7 percent to $1,130 an ounce, as the prospect of further US rate hikes outweighed political concerns.

Asian markets closed mixed. Japan’s Nikkei 225 clocked another fresh high for the year, advancing 0.5 percent to 19,494.53, while South Korea’s Kospi added 0.2 percent to 2,041.94. But Hong Kong’s Hang Seng index fell 0.5 percent to 21,729.06 and the Shanghai Composite Index in mainland China dropped 0.5 percent to 3,102.88. The S&P/ASX 200 in Australia gained 0.5 percent to 5,591.10.

Hong Kong closed down 0.5 percent and Shanghai also ended down 0.5 percent, with mainland Chinese investors fretting over a weakening yuan and rising bond yields. Manila shed 1.6 percent, Jakarta fell 0.3 percent and Kuala Lumpur lost 0.2 percent while Bangkok and Mumbai were also well down. However, Tokyo ended 0.5 percent higher after the Bank of Japan held fire on its stimulus but gave an upbeat view of the world’s number-three economy as exports pick up on the back of a weaker yen. The Nikkei had fallen slightly Monday after a nine-day rally. Sydney added 0.5 percent and Seoul gained 0.2 percent, while Taipei and Wellington were flat.

The yen has fallen more than 17 percent against the greenback since Trump’s shock US presidential election win in November fanned speculation that his plans for big government spending and tax cuts would force the Federal Reserve to raise borrowing costs. — Agencies