Dollar rallies to decade peak as US growth stays on track, backing case for higher rates in December

PUBLISHED : Thursday, 24 November, 2016, 1:10am
UPDATED : Thursday, 24 November, 2016, 1:10am

The dollar rallied to its highest level in more than a decade after government reports showed US economic growth remains intact, supporting the case for higher interest rates.

The US currency rose against most of its major peers as orders for business equipment climbed in October for the fourth month in the last five, while sales also advanced, indicating improvement corporate investment. Minutes of the Federal Reserve’s November policy meeting scheduled to be released later in the day are likely to confirm that officials were creeping closer to their first interest-rate increase in a year before President-elect Donald Trump’s victory.

“We have had a relentless and powerful move in the dollar since the Trump election victory and all the right dominoes have started to fall,” said Brad Bechtel, a currency strategist at Jefferies Group LLC in New York. “We retain the dollar-bid bias straight into month end before the correction, or cooling finally begins.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, gained 0.7 per cent, reaching the strongest level since at least 2005. The greenback gained 1.5 per cent to 112.75 yen.

A gauge of whether asset-price movements have gone too far, too fast is signalling the rally maybe overdone. The 14-day relative strength index has risen above the 70 threshold for 10 days, flashing signal of a reversal.

With the market seeing action at the Fed’s December 13-14 meeting as a certainty, attention is shifting to next year, where futures show a more than 50 per cent chance of further rate hikes by June.

HSBC Holdings Plc revised up its dollar forecasts, citing the prospect for higher US rates following the election.

Still, a lack of certainty over the Trump administration’s policies makes it “problematic for the foreign-exchange market to price the election outcome with conviction,” HSBC strategists including New York-based Daragh Maher said in a note.