Market trading pushed the dollar to a near 14-year high compared to the euro, Turkish lira, and other currencies on Tuesday. The reason: Investors expect a surge of investment in the US under a Trump administration.
The dollar surged to a near 14-year high before pulling back on Thursday, clocking up records against a range of other top world currencies and putting those of many emerging-market countries under pressure, as investors’ money flowed toward the United States.
Stronger data from the world’s biggest economy and thinner trading volumes on the US Thanksgiving holiday underpinned the dollar’s gains.
Emerging market assets have been pounded since Donald Trump’s victory in the US presidential election as his expansionary fiscal policies are expected to fuel inflation and prompt the US Federal Reserve to tighten more aggressively than previously thought.
The dollar had eased off highs by midday, after pushing past more of last year’s peaks against the euro. Buying a euro cost traders as little as $1.0515 on Thursday, with only the March 2015 high of $1.0457 standing in the way of a drive towards parity. It was a stark contrast compared to a time less than two years ago, in January 2014, when it cost as much as $1.38 to buy a euro.
The yen had skidded to an eight-month low, and China’s yuan to an 8-1/2 year low.
“There doesn’t seem to be anything stopping US yields going higher in the near term so I think people are going to stay on the dollar trend,” said State Street Global Markets’ Michael Metcalfe.
“The only risk to this are that the dislocations in markets outside of the US, particularly in emerging markets, get to a point where they start to feed back into concerns [for the Federal Reserve as it looks to raise interest rates],” he said.
State banks or foreign exchange authorities in China, India, Indonesia and the Philippines were all suspected by forex traders of intervening to slow the slide in their currencies.
“Our bias remains for weaker emerging market currencies over the coming quarters,” said Roxana Hulea, emerging markets strategist at Societe Generale, adding that aside from the impact of Trump’s policies, there were a number of political events looming in Europe, making investors wary of deploying funds into riskier assets.
Worries over Turkey and India
Turkey’s lira and India’s rupee both sank to record lows, though the lira clawed back some ground as Turkey’s central bank raised one of its benchmark interest rates for the first time since 2014.
India’s government recently embarked on a controversial currency reform, canceling high-denomination banknotes in an effort to make corruption and payoffs harder.
“Exchange rate movements due to recently heightened global uncertainty and volatility pose upside risks on the inflation outlook,” the Turkish central bank’s monetary policy committee said in its statement.
The Turkish lira was down as much as 0.7 percent as investors worried political pressure would prevent the central bank raising rates at its meeting later on Thursday.
President Tayyip Erdogan said on Wednesday that Turkey’s real interest rate was one of the highest in the world, something which had to change in order to achieve high growth.
Commodities are up
Oil prices were little changed amid all the dollar commotion and ahead of a planned OPEC-led cut in crude production at a meeting on Nov. 30. US crude was up 20 cents at $48.22 a barrel, and Brent was at $49.19.
Industrial metals remained red-hot on hopes of a revival in US manufacturing and infrastructure spending under Trump. London zinc hit an 8-year high and copper jumped for a fourth day in a row to put $6,000 a tonne within reach.
“Strong durable goods orders in the US helped buoy investors who have viewed Trump’s upcoming presidency as a positive for industrial metals demand,” ANZ said in a report.