On Tuesday, the dollar reached an 11-week high as investors increased their wages on the Fed increasing U.S. interest rates before the end of 2016, and as doubts heightened over Donald Trump’s ability to win the U.S. presidency.
In Sweden by distinction, market players are betting the central bank may have to loosen policy further – a view that was strengthened by a weak inflation report on Tuesday, driving the Swedish crown to a 6-1/2-year low versus the euro. As U.S. Treasury yields rebounded to their highest levels since early June US10YT=TWEB, the dollar index – which gauges the greenback against six major peers – hiked 0.6 percent to 97.475 .DXY, its highest since in four months.
Traders have priced in a 70% possibility the Fed will increase rates at its Dec. 13-14 meeting, advanced from 66 percent on Friday, according to CME Group’s FedWatch tool. Some analysts said widening odds of Trump becoming president were also helping to ramp up the dollar, after the most senior Republican in Congress, Paul Ryan, pulled his support from Trump. A Trump victory is seen as likely to ignite political uncertainty, which markets tend to move away from.
“Trump is widely deemed to be dollar-negative, while a Clinton victory is regarded to be positive for the dollar. In the absence of a shock victory for Trump, the Federal Reserve will most likely raise interest rates in December, thanks to improving data in the US,” stated analyst Fawad Razaqzada.
Though not all were certain about Trump’s impact on the dollar. “I think politics is difficult for the dollar these days – I don’t know if the market has quite made up its mind about what to make of a possible Trump victory,” stated DZ Bank currency strategist Sonja Marten.
“I think (the dollar strength) is more to do with the Fed… At this point it seems like they’re more willing to take a slightly more hawkish stance.”
Investors are watching on Wednesday’s release of minutes of the latest Federal Reserve Open Market Committee meeting to see how close the Fed was to hiking rates last month. Speaking to reporters after a speech in Sydney, Chicago Fed President Charles Evans reported he “could be fine” with the Fed hiking rates in December, but he wanted to see how the economy and inflation progressed before deciding. China’s yuan dropped further, reaching a new six-year low after the central bank set a feebler guidance rate, igniting market expectations that it may permit further depreciation and setting off dollar purchases, traders reported. Japanese, Canadian and some U.S. markets were closed on Monday for holidays.