Dollar Extends Gain Against Yen After Best Month Since 1995

  • Treasuries’ rising yield premium over peers boosts greenback
  • Trump selection for Treasury secretary also gives support

How Much Further Can the Dollar Rally Versus the Yen?

The dollar completed its best month versus the yen in two decades as rising Treasury yields added to the U.S. currency’s allure.

The greenback extended Wednesday’s surge on speculation that the Federal Reserve will raise interest rates in December and on the prospect of President-elect Donald Trump’s proposed fiscal stimulus fueling inflation. Data on U.S. employment and personal income exceeded forecasts, bolstering the case for a Fed move.

“If U.S. bond yields continue to rise in the same way as they have since the presidential election, there’s a case for the yen to continue to weaken,” said Richard Falkenhall, a strategist at SEB AB in Stockholm.

The dollar gained 0.2 percent to 114.74 yen as of 8:57 a.m. in Tokyo, after jumping 1.9 percent in New York. The greenback surged 9.2 percent in November, the most since 1995.

The greenback may see its gains consolidate as it approaches 115 yen, according to Falkenhall.

Politics are also playing their part in the rally, after Trump said he’d nominate former Goldman Sachs Group Inc. partner Steven Mnuchin as the next Treasury secretary.

The selection fuels “expectations that he’d allow a strong dollar, as that’s been a pattern for Treasury secretaries from the financial industry,” said Shigeki Yoshitoshi, head of Japan foreign-exchange and commodities sales at Australia & New Zealand Bank Group Ltd. in Tokyo.

As U.S. 10-year yields held close to the highest levels this year, the difference over German bunds, Europe’s benchmark sovereign securities, approached the widest on record, according to closing-price data going back to 1990.

The dollar climbed more broadly, with a Bloomberg index of the U.S. currency versus 10 major peers advancing 3.9 percent last month. The gauge last week touched a record high in data going back to 2004.

“Sentiment is still favoring the Trump rally,” said ANZ’s Yoshitoshi.

— With assistance by Anooja Debnath

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