Washington: The dollar posted its biggest two-week rally against the yen since 1988 amid bets that Donald Trump’s administration will pursue fiscal stimulus, boosting the US economy and triggering monetary tightening.
The greenback touched the strongest level against the yen since May and appreciated the past 10 trading sessions versus the euro, an unprecedented streak. Traders see an interest-rate increase next month by the Federal Reserve as a virtual lock, enhancing the appeal of dollar holdings.
The US currency’s appreciation over the past two weeks came as Treasury yields surged on bets the Republican president-elect’s spending pledges will spark faster inflation. Fed Chair Janet Yellen suggested Thursday the central bank remained on course to tighten policy next month.
“It’s right to assume that if we get sizable fiscal stimulus, it is and should be dollar-positive,” said Daragh Maher, head of US currency strategy in New York at HSBC Holdings Plc. “That’s the fixation and you don’t fight it.”
The US currency added 7.6% over the past two weeks to ¥110.91, and reached the highest since May. The dollar’s back-to-back weekly gains versus the euro drove it to $1.0588 per euro as it touched the strongest since December.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, reached the highest since February. It’s now up 1.5% this year, after accumulating losses for most of 2016.
Yellen gave the dollar a boost Thursday as she told Congress a rate increase “could well become appropriate relatively soon.” Traders put the chances of a Fed rate increase next month at virtually 100%, compared with about 70% at the beginning of the month.
“Higher interest rates and the expectation that the Fed not only is likely increase interest rates in December, but probably more quickly next year, have driven the dollar higher,” said Kate Warne, an investment strategist at Edward D. Jones & Co. Bloomberg