Dollar hits new highs as yields spike after Trump win

A couple stands in front of boards displaying the exchange rates of the Mexican peso against the U.S. dollar (top) and the euro at a CI bank branch in Mexico City

By Dion Rabouin

NEW YORK (Reuters) – The dollar rose across the board and hit its highest in nearly four months against the Japanese yen on Wednesday, as U.S. Treasury debt yields touched multimonth highs following Republican candidate Donald Trump’s victory in the presidential election.

Prices fell on benchmark 10-year Treasury notes and 30-year bonds, pushing yields to their highest levels in 10 months, as investors expected Trump to enact protectionist trade policies that would put upward pressure on U.S. wages and boost inflation.

U.S. 30-year bond yields, which move inversely to prices, had their sharpest rise in more than five years while 10-year note yields posted their largest increase since July 2013.

Fear of rising inflation tends to erode the value of bonds, increasing yields. Higher U.S. interest rates raise the value of the dollar by making dollar-denominated assets more attractive to investors.

“Yields are driving moves and are driving everything we’re seeing in the markets, and as long as they continue to rise you’ll see dollar/yen rise,” said Kathy Lien, managing director of BK Asset Management. “Dollar/yen is getting positive support from the turnaround in U.S. stocks, positive support from the yield spreads and generally speaking we’re seeing pretty consistent price action across these different markets.”

The dollar reversed earlier selling against the safe-haven yen to touch a high of 105.87 yen, its highest since July 27. It had fallen as much as 4 percent in overnight trading as Trump moved closer to securing the election win over heavily favored rival Hillary Clinton.

Fed fund futures show investors still overwhelmingly expect the U.S. Federal Reserve to raise interest rates at its December policy meeting after being on hold since hiking rates in December 2015.

The dollar also rallied against the Swiss franc <CHF=>, touching its highest against the world’s other reputed safe-haven currency since Nov. 1.

The euro <EUR=> fell to $1.0920, its lowest against the greenback since Oct. 28.

The Canadian dollar <CAD=> and Mexican peso <MXN=> both fell against the dollar. The loonie dropped to its lowest since March and the peso, seen as the currency most vulnerable to Trump’s protectionist policies, hit its lowest level in history.

Both recovered in later trading, but the Canadian dollar remained 0.6 percent lower and the peso was last down 8 percent.

The dollar index <.DXY>, which tracks the greenback against six major world currencies, gained 0.7 percent to 98.545, its highest since Oct. 31.

(Reporting by Dion Rabouin; Editing by David Gregorio)