Binge fears: Dollar hits 11-month high

london — The US dollar hit an 11-month peak on Monday as the risk of faster domestic inflation and wider budget deficits if Donald Trump goes on a United States spending binge sent Treasury and other benchmark global bond yields ever higher.

It was a painful mix for assets in many emerging market countries. Currencies from the Mexican peso to the Malaysian ringgit fell to new lows, but for European share markets it made for a strong start to the week.

The pan-European Stoxx 600 index rose 1.1 per cent, underpinned by gains among banks on hopes higher interest rates will help their profits and mining companies, which have been cheering Trump’s promise of major infrastructure spending. The reflation trade also saw futures for the S&P 500 and Dow Jones industrial add another 0.5 per cent after the Dow chalked up best week in five years last week.

The dollar bounded towards 108 yen and hit the eye-catching 100 threshold against a basket of currencies in brisk trade. That took the pace off a resurgent sterling and saw the euro slide to its lowest since the start of the year at around $1.0745. “Clearly the market has settled on a ‘buy dollar’ theme on the basis there will be a debt-fuelled US fiscal binge that will push up inflation,” said TD Securities European Head of Currency Strategy Ned Rumpeltin.

“People are repricing the Fed on the basis of that so it all seems to be a relatively straight forward.”

The dollar has been on a tear since the victory of Republican Trump in the US presidential election on Nov. 8 triggered a massive sell-off in Treasuries.

Yields on the US 10-year Treasury notes climbed to their highest since January on Monday at 2.22 per cent, while 30-year paper reached three per cent. German 30-year yields topped one per cent for the first time in more than six months.

Just two days of selling last week wiped out more than $1 trillion across global bond markets, the worst rout in nearly a year and a half, according to Bank of America Merrill Lynch.

The jump in yields on safe-haven US debt threatened to suck funds out of emerging markets, while the risk of a trade war between the US

2.22% jump in yields on the us 10-year treasury notes

and China is also causing jitters.

MSCI’s broadest index of AsiaPacific shares outside Japan ended at its lowest since mid-July as Hong Kong and Indonesia led the region’s losses with drops of 2.7 and 2.2 per cent. In contrast, Japan’s Nikkei jumped 1.7 per cent on the weakening yen to reach its highest in nine months.

The New Zealand dollar eased after a powerful earthquake rocked the island nation early on Monday. The currency dipped to $0.7092, with losses limited by talk rebuilding work would support an already strong economy and lessen the need for further interest rate cuts. —