Dollar Set for Weekly Surge as Fed Outlook Weighs on Bonds, Gold 

gold
  • 100% odds of a December Fed move keep dollar at 10-year high
  • 40-year JGB yields drop after auction, flattening curve

The prospect of a higher interest-rate environment in the U.S. continues to course through markets, sending the dollar toward its steepest three-week climb against the yen since 1995. Treasuries and gold fell.

The greenback climbed to its strongest level since March versus the yen, as the Turkish lira extended losses at a record low. Other emerging-market currencies, including India’s rupee and South Korea’s won, clawed back some ground. Asian stocks were poised for their first weekly gain in five weeks as S&P 500 Index futures increased. Benchmark 10-year Treasury yields rose another four basis points following the Thanksgiving holiday. Gold extended losses at a nine-month low as copper, regarded as a barometer for the global economy, headed for a weekly jump of more than 8 percent.

Strong economic data and the prospect of increased spending under President-elect Donald Trump have fueled a surge in bets on Federal Reserve rate hikes, propelling the greenback to its highest level in a decade versus major peers. Traders see an increase in borrowing costs in December as a certainty, while the odds of additional moves by June have risen to more than 60 percent, according to futures data tracked by Bloomberg. That speculation has seen emerging markets among the hardest hit, with a gauge of Southeast Asian equities sliding on Thursday to a March low.

“As long as the data flow continues to be relatively robust and strong, it gives support to the thesis that the dollar will lead in terms of resilience in the economy, in terms of policy leadership,” said Claudio Piron, Bank of America Corp.’s co-head of Asia currency and rates strategy in Singapore. “Looking at our positioning data as well, it still seems to us that we are having flows continuing to build into the dollar.”

Stocks

  • The MSCI Asia Pacific Index added 0.4 percent as of 2:55 p.m. Tokyo time, headed for a weekly gain of 1.1 percent following four weeks of losses
  • The Topix added 0.3 percent, while the Kospi index in Seoul fluctuated
  • Real estate and utility shares led Australia’s S&P/ASX 200 Index up 0.4 percent
  • S&P 500 Index futures rose 0.1 percent from Wednesday’s close, with equity markets in the U.S. to close Friday at 1 p.m. local time

Currencies

  • The yen was little changed at 113.35 per dollar after trading as weak as 113.90, leaving it down 2.2 percent in the week, the worst performance among major currencies
  • The lira slipped 0.3 percent, while Malaysia’s ringgit also dropped
  • The Indian rupee strengthened after sinking to a record low Thursday
  • China’s yuan held near an eight-year low in Hong Kong after the central bank further weakened its reference rate for the currency versus the dollar. The yuan rose this week to an August high versus a basket of peers, signaling that its declines against the greenback have been more moderate than those of other currencies

Bonds

  • Ten-year Treasuries fell, pushing yields to 2.39 percent
  • The yield on 40-year Japan government bonds fell 4 1/2 basis points to 0.72 percent, reversing an earlier climb after an auction of the debt saw 499.7 billion yen ($4.4 billion) of securities sold at a highest yield of 0.725 percent
  • “The 40 year bonds were well received in the auction, triggering a bout of bond buying,” said Masahiko Sato, an analyst at Nomura Holdings Inc. in Tokyo
  • Yields on Australian sovereign debt due in a decade pared their gain to one basis point after touching the highest level since January
  • The U.S. debt market usually closes at 2 p.m. in New York the day after Thanksgiving

Commodities

  • Gold for immediate delivery dropped 0.3 percent to $1,178.65 an ounce, falling for a fourth day
  • Copper added 0.2 percent in London and has surged 8.3 percent this week. The industrial metal has soared 20 percent this month
  • West Texas Intermediate crude oil slipped 0.6 percent to $47.65 a barrel

Source: Bloomberg

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