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US dollar hits at 11-month high after upbeat US data

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The US dollar rose on Tuesday to an 11-month high against a basket of currencies as a surprisingly large gain in October US retail sales lifted bond yields to 10-month peaks and supported the outlook for an interest rate increase next month.

[NEW YORK] The US dollar rose on Tuesday to an 11-month high against a basket of currencies as a surprisingly large gain in October US retail sales lifted bond yields to 10-month peaks and supported the outlook for an interest rate increase next month.

An early tapering of the surge in US yields tied to President-elect Donald Trump's election win spurred traders to scale back their US dollar holdings. But the greenback pared its losses after the release of retail sales figures revived selling in bonds.

"It's more a pause day, perhaps marking a period of consolidation for bonds and the dollar," said Omer Eisner, chief market strategist with Commonwealth Foreign Exchange in Washington.

The Commerce Department said domestic retail sales rose 0.8 per cent in October, exceeding the 0.6 per cent gain forecast of economists polled by Reuters.

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The US dollar index, which measures the greenback against six major currencies, was up 0.1 per cent at 100.22 after rising to 100.26. It fell as low as 99.45 earlier as US yields were unchanged to lower.

The index rose for a seven straight day, bringing its cumulative gain to 3.23 per cent, which marked the biggest rise in about a year.

The yield on two-year Treasuries rose to 1.029 per cent, the highest since early January.

The US dollar rose with the jump in yields as Mr Trump's victory last week led traders to pile on bets that he and a Republican-controlled Congress would embark on tax cuts and federal spending to boost the economy.

However, they could be offset by possible restrictions on immigration and trade, which could hurt business activity, analysts said.

"We don't know whether and in what form Trump will follow through on what he campaigned on," said James Chen, head of research at Gain Capital in Bedminster, New Jersey.

The euro, which hit an 11-month low of US$1.0709 on Monday, rebounded to US$1.0816 before easing to US$1.0719, down 0.2 per cent on the day.

The US dollar was up 0.8 per cent at 109.26 yen after advancing to a 5-1/2 month peak at 109.33 yen in late US trading.

The rise in implied volatilities on currency pairs, such as euro/US dollar and US dollar/yen, suggested caution over a sudden fall in the greenback despite its spectacular gains since last week, said Kazushige Kaida, head of forex trading at State Street in Tokyo.

The onshore Chinese yuan fell to its weakest level in nearly eight years, breaking through 6.85 per US dollar.

REUTERS

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