Dollar firms after upbeat U.S. data raises rate hike expectations

TOKYO : The dollar firmed in Asian trading on Thursday after data suggesting a pickup in U.S. economic growth early in the fourth quarter increased chances of the Federal Reserve raising interest rates.

The dollar index, which tracks the greenback against a basket of six major peers, rose 0.1 percent to 101.77, pushing back toward its overnight high of 101.91, its highest in nearly 14 years.

U.S. markets will be closed Thursday for the Thanksgiving holiday, while Tokyo markets were closed for a public holiday on Wednesday.

Investors are now pricing in a nearly 100 percent probability of a December Fed rate increase, according to CME FedWatch, and some investors expect more hikes next year if economic momentum is sustained.

“The momentum for the weaker yen could continue through the end of the year, since we are thinking the Fed will make two or three interest rate hikes in 2017,” said IHS Markit’s principal economist in Tokyo, Harumi Taguchi.

U.S. data on Wednesday showed new orders for U.S. manufactured capital goods rebounded last month on rising demand for machinery and equipment, while consumer sentiment rose this month following Donald Trump’s election which many viewed as positive for their personal finances and the economy.

The dollar has strengthened since Trump was elected president as U.S. Treasury yields spiked on expectations that the new administration would boost debt-funded stimulus spending and stoke inflation.

Since Trump’s Nov. 8 victory, global bond markets have lost close to $ 2 trillion, according to Bank of America Merrill Lynch data.

“The dollar index is on an upward trend as the Trump euphoria continues,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust, although she noted it will eventually have a downside for the U.S. economy.

“The strong dollar will undermine the U.S. economy in the long run, especially the manufacturing sector,” she said.

The dollar was up 0.2 percent at 112.74 yen after rising as high as 112.98 yen on Wednesday, its loftiest peak since March.

“The market is still short dollars, and Japanese importers are still far behind to cover their exposure, so the downside will be limited even with this unexpected high-speed dollar rise,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

Minutes of the Fed’s Nov. 1-2 meeting, the last one ahead of the election, were released on Wednesday and showed the central bank was gearing up to raise rates.

Voting members of the Fed’s rate-setting committee saw equal risks the economy would overshoot or undershoot their forecasts for continued growth and a tightening labour market.

Japan’s top currency diplomat Masatsugu Asakawa said there will be no change to Japan’s currency policy after Trump forms his administration, the Nikkei newspaper reported on Thursday.

The euro shrugged off an upbeat reading on business activity and dipped 0.1 percent to $ 1.0543, wallowing not far from its low of $ 1.0525, which was its lowest since December 2015.

Euro zone business activity expanded the most in nearly a year in November on strong manufacturing and buoyant services growth in Germany, raising hopes that economic momentum is picking up again.