The stellar dollar rise continued this week reaching its highest peak against its basket currency competitors since 2002 and putting in its best two-weekly performance versus the yen since 1988 on the back of republican candidate Donald J Trump’s surprise win in the U.S. presidential race.
The dollar was further bolstered by remarks from Janet Yellen, U.S. Federal Reserve Chair, who said last week that she expected interest rates to rise “sooner rather than later” giving the clearest indicator yet that, as the markets expect, the hike will come before the end of the year.
The U.S. currency gained around 8 percent in the last two weeks to hit a six-monthly high against the yen of 110.926. That’s the dollars best performance over a fortnightly period for three decades and its second best performance since floating exchange rates began.
“We are most definitely seeing a very large scale shifting of investments stateside,” said James Coleman, Managing Director and co-head of Portfolio Trading at Softbank CIBC International in an interview with BBC business news yesterday.
“Not since March 2003 have we seen the dollar index at this kind of level, it shot to 101.36 yesterday. Of course this is all based on the perception that Mr Trump will follow through on his promises to lower taxation and increase spending on major infrastructure projects and defence,” Coleman continued.
As expectations drive asset prices in the U.S., investors are being deterred from stocks in Europe due to continued economic and political concerns, like the effect of the Brexit vote and ever increasing bailouts flowing to Athens. This serves to further bolster the greenback.
Favourable data reports have given even more credence to those speculating on a December rate hike, as encouraging housing starts numbers, which hit a decade long peak, prompted Yellen to say a rate hike was in the offing. Consumer prices posted a semi-annual high and jobless claims hit a 44 year low.
According to research firm, CME FedWatch, traders are now pricing in a 91 percent chance of a rate hike during the holiday season. The Fed is due to convene for their monthly meeting on December 13-14 to decide on policy and will release the minutes the following day.
Olivier Korber, SocieteGenerale senior strategy consultant, said in a recent blogpost, “We might expect the euro to keep falling if certain protectionist policies come into play at the start of 2017.”
