US dollar regains footing as US data boosts multiple rate hike view

[NEW YORK] The US dollar resumed its uptrend on Tuesday, helped by a surge in US existing home sales last month that further cemented expectations not only of a Federal Reserve interest rate hike in December, but also of further tightening next year.

On Monday, the US dollar sold off slightly as investors took advantage of a holiday-shortened week to square positions and book profits on a US currency that has logged nearly two weeks of extended gains.

In that span, the US dollar index has gained nearly 5 per cent on expectations US President-elect Donald Trump would boost fiscal spending, in turn elevating inflation and lifting interest rates.

Data on Tuesday showed US home resales rose two per cent in October to an annual rate of 5.6 million units, the highest level in more than 9-1/2 years. That pushed the US dollar to session highs versus the yen and drove a turnaround in the US dollar index.

"The greenback should continue to benefit from mounting expectations for inflation and a potentially faster pace of Fed rate hikes," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

In late morning trading, the US dollar rose 0.4 per cent against the yen to 111.20 yen. On Monday, the US dollar had hit a six-month high versus the Japanese currency.

An earthquake of magnitude 7.4 and a subsequent tsunami warning in northern Japan prompted knee-jerk selling of the US dollar for the safe-haven yen overnight. The 2011 earthquake in Japan had resulted in a nearly 7 per cent appreciation of the yen for the first few days afterwards on the expectation of increased repatriation flows.

"There is a feeling that the step adjustment in the US dollar has already happened," RBC head of G10 FX strategy Adam Cole said, outlining a 2017 outlook that called for the US dollar to fall back to around 100 yen. "A December rate hike is now totally discounted. Two more hikes next year are 80 per cent discounted. At these levels I would like to start fading the rally in US dollar-yen."

On Monday, the greenback had set a near six-month high of 111.36 yen, which amounted to a gain of 10 per cent from its Nov 9 trough near 101 yen.

The dollar index rose 0.1 per cent to 101.19 as the euro fell 0.3 per cent against the US dollar to US$1.0598. The shared currency was not far from a nearly one-year low against the US dollar hit last week.

REUTERS