US Dollar Notched a 14 yr High Pumping The Trump Rally
The USD rose to a 14-year high against a basket of peer currencies Thursday after the Fed boosted the number of projected interest rate hikes for Y 2017, adding fuel to The Trump Rally and hammering the EM (emerging market) currencies.
The Fed’s 25 bspt interest rate increase Wednesday was widely anticipated by financial markets though they appeared to have been caught out by the central bank talk of 3 hikes in Y 2017, up from around 2 indicated at its September policy meeting.
The relatively Hawkish Fed stance came as US President Elect Donald Trump takes over with vows to boost growth through tax cuts, spending and deregulation.
The dollar index extended its overnight rally and was up 0.5% at 102.270. It touched 102.620, its highest since January 2003. The EUR was down 0.2% at 1.0512 after sliding to 1.0468, a trough not seen in 21 months.
The USD set a 10-month high of 117.860 yen early Thursday and was last up 0.3% at 117.390.
The call of higher US yields took a predictable toll on emerging Asian currencies.
The Chinese RMB Yuan fell to its lowest levels in more than 8 years, after the central bank set the daily mid-point at the lowest since mid-2008.
Low-yielding currencies such as the Singapore Dollar and Korean Won came under pressure, as investors grew anxious over the risk of capital being sucked out of regional economies toward USD-based assets.
The Singapore Dollar fell near its January low and is on the verge of slipping to its lowest September 2009.
With the Fed out of the way, analysts say The Trump Factor remains an unknown for markets for now.
US Treasury yields, a Key driver of the USD’s Trump Rally, have been running due North since early November on prospects of the new administration will embark on reflationary policies through massive fiscal spending.
Following the Fed’s move, the 10-year Treasury note yield vaulted to 2.587%, its highest level since September 2014, while US shares fell the most in 2 months overnight, but picked up at the US open,
Analysts said Tokyo may also step up verbal warnings against any excessive Yen declines Vs the USD.
The Australian Dollar was up 0.3% at 0.7426 , trimming some losses after falling 1.2% the Wednesday against the broadly stronger USD.
The New Zealand Dollar touched a 10-day low of 0.7090 .
The antipodean currencies managed to gain against the Japanese Yen thanks to higher domestic yields.
The Aussie touched an 11-month high of 87.27 Yen and the Kiwi marked an 18-month peak of 83.56 Yen.
The GBP was 0.1% lower at 1.2553 after hitting a 2-week low of 1.2515.
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