Dollar steadies as Trump expected to boost growth

The dollar steadied near a recent 13½-year peak on Wednesday, taking a breather ahead of the US Thanksgiving holiday after surging on expectations that a Donald Trump administration will boost growth and push up US interest rates.

China’s offshore yuan fell to a record low as traders grappled with signs of accelerating capital outflows in the wake of Trump’s shock US election win.

The dollar index – which tracks the greenback against six major currencies – has climbed almost 3 per cent since Trump’s victory two weeks ago, but has edged slightly lower this week after reaching its highest levels since early 2003.

Investors are betting the dollar will be strengthened by Trump's plans for fiscal stimulus – which may drive the Federal Reserve to raise interest rates faster than had been anticipated because of increased inflation – and for infrastructure spending and the repatriation of profits earned overseas.

The dollar was flat on Wednesday against both the euro and yen ahead of Thursday’s Thanksgiving holiday.

Taking a pause

“The dollar is taking a pause but with good reason – the US is on holiday tomorrow and it’s going to be a very light day the day afterwards,” said Citi’s head of G10 currency strategy in London, Richard Cochinos. “Because of the holiday, there’s always this concern that potentially we should just lighten our exposure into it.

“Investors will probably end up coming back on Monday to refocus not so much on the dollar and the US story, but more what are their expectations for Europe going forward.”

The euro is facing a host of political risks in the coming months – from an Italian constitutional referendum in less than two weeks to French and German elections next year – that are seen as likely to drive the euro lower.

The single currency traded at $1.0616 on Wednesday, close to an 11-month low of $1.0569 hit last week.

Another factor that has blunted the dollar’s momentum this week is a pull-back in benchmark US 10-year treasury yields from recent highs, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Settled down

“Bonds have settled down, and that’s a reason why dollar-buying hasn’t been so intense,” Mr Okagawa said.

The US 10-year treasury yield stood at 2.319 per cent at Tuesday’s US close, down from Friday’s one-year high of 2.364 per cent.

Against the yen, the dollar was flat at 111.08 yen in thin trade, with Japanese markets closed on Wednesday for a public holiday.

On Tuesday the dollar had risen to as high as 111.36 yen, matching Monday’s peak, which was the greenback’s strongest level against the yen since late May.

Later on Wednesday, focus will turn to US durable goods orders and minutes from the Fed’s November policy meeting, though the latter are not seen as likely to move the dollar much. Markets are now pricing in around a 95 per cent chance of a December Fed hike, according to CME FedWatch.