Surging US bond yields lift US dollar to 11-month high

[NEW YORK] The US dollar rose to an 11-month high against a basket of major currencies on Monday, in step with a jump in US bond yields as traders bet fiscal and trade policies under a Donald Trump administration would stoke inflation.

Mr Trump's stunning US presidential win last week also sparked expectations of similar victories in Europe in the coming months. Worries over a rising tide of nationalist sentiment and restrictions on trade across Europe pressured the euro, analysts said.

China's yuan fell to its weakest against the US dollar since before the launch of its offshore market in 2010.

"A lot of the move with the dollar has to do with higher yields," said Christopher Vecchio, currency analyst at FXCM in New York.

"It's a seismic moment for markets."

The US dollar index was 1.1 per cent higher at 100.10 after touching 100.22 earlier on Monday, its highest since Dec 3, 2015.

The benchmark 10-year Treasury note yield rose as high as 2.30 per cent, its highest since early January, while a bond market gauge on investors' 10-year inflation expectations hit its highest level in over two years.

"The outlook for the US hasn't looked this good for a while. It's hard to se how the dollar will sell off much from here," said Paresh Upadhyaya, director of currency strategy at Pioneer Investments in Boston.

Upbeat technical signals would also support greenback's current rally, Mr Upadhyaya said.

Higher US yields have lifted European and Japanese yields as those economies continue to struggle with weak growth and inflation. This could force the European Central Bank and Bank of Japan to stick to their ultra-loose monetary policies for a longer period, analysts said.

The euro shed 1.1 per cent at US$1.073 after hitting its lowest level against the greenback since Dec 3, 2015, while the US dollar was up 1.8 per cent at 108.43 yen after reaching its strongest level since June 23.

The yield on 10-year German Bunds hit 0.397 per cent, the highest since late January, and the yield on 10-year Japanese government bonds ended at -0.013 per cent, hovering at its highest level in two months.

The yuan has weakened on worries that Mr Trump and the Republican-controlled US Congress may slap tougher restrictions on Chinese imports.

The Chinese currency was down 0.5 per cent against the US dollar at 6.8596 yuan.

REUTERS