Dollar Extends Post-Election Advance Versus Yen on Retail Sales

  • Stronger-than-expected data push greenback to five-month high
  • U.S. currency gains versus most major peers since Trump win

This Dollar Rally May Be Different: Pimco's Clarida

The dollar advanced to a five-month high against the yen, extending a rally triggered by Donald Trump’s victory last week in the U.S. presidential election.

The greenback climbed against the yen as U.S. retail sales figures were stronger than forecast, while Federal Reserve Bank of Boston President Eric Rosengren said the central bank would tighten monetary policy faster with more fiscal stimulus. The president-elect’s proposals to increase spending and cut taxes are fueling bets economic growth will accelerate and push the Fed to raise interest rates.

The dollar sank earlier in the trading day on speculation its advance since Nov. 8 was too rapid. It entered overbought territory versus its Japanese counterpart for the first time this year, while Goldman Sachs Group Inc. President Gary Cohn warned the strengthening poses a threat to U.S. manufacturers by making imports more competitive. The evidence of strength in the world’s biggest economy helped turn the currency around.

“The dollar is potentially going to go a lot higher still, if we do go down the route of extra fiscal stimulus,” which would also result in higher interest rates, Jeremy Hale, head of global macro strategy and asset allocation at Citigroup Inc., said in a Bloomberg Television interview. “That mixture of growth stimulus through the fiscal side and tighter monetary policy can be very powerful for the currency.”

Speculation that Trump will spur price growth by increasing spending has driven up Treasury yields, which peaked Monday with the 10-year yield premium over Japanese bonds at an almost three-year high of 2.27 percentage points. That bolstered the dollar versus the yen. The U.S. currency is up versus all 31 major peers tracked by Bloomberg except the British pound over the past week, while the market-implied chance of a Fed rate increase next month has climbed above 90 percent.

The dollar gained 0.7 percent to 109.20 yen as of 5 p.m. New York time, reaching its strongest since June, and 0.1 percent to $1.0722 per euro. It was the seventh straight day of gains against the euro, the longest streak since March 2015.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.1 percent. It surged 2.8 percent last week, the most since 2011, and on Monday erased its losses for this year.

A 0.8 percent rise in retail sales in October followed an upwardly revised 1 percent jump the prior month, marking the biggest back-to-back increase since 2014, the Commerce Department reported Tuesday. The median forecast in a Bloomberg survey called for a 0.6 percent gain.

The probability of a December rate hike by the Fed rose to 94 percent, from 80 percent the day before the U.S. election, according to fed fund futures compiled by Bloomberg. Rosengren said he didn’t dissent at the FOMC meeting this month after changes to the language of the policy statement that indicate a rate hike is likely in December. Richmond Fed President Jeffrey Lacker said Monday that a more stimulative fiscal outlook usually warrants higher policy rates.

The stronger dollar will be troublesome for U.S. automakers by making foreign cars cheaper for U.S. consumers, Goldman Sachs’s Cohn said in an interview on CNBC.

Further strength in the dollar will be more sustainable if it’s driven by macroeconomic fundamentals such as the retail sales data rather than “vague expectations” regarding Trump’s policies, said Jeff Greenberg, a macro strategist at UBS Securities LLC in New York. “There are limits to how far the dollar can strengthen.”

— With assistance by Chikako Mogi, Anchalee Worrachate, Mika Otsuka, and Lilian Karunungan

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE