Dollar jumps to 16-month highs on hot US inflation data

London

THE US dollar rose to 16-month highs against the euro and other currencies on Thursday (Nov 11), and the yen fell back towards multi-year lows, after the hottest US inflation reading in a generation encouraged bets on interest rate hikes.

US consumer prices grew last month at their fastest annual pace since 1990, data showed, and traders think the Federal Reserve could respond by lifting interest rates faster than in Europe or Japan.

The euro dropped as the European Central Bank is seen lagging on policy tightening. It slipped to US$1.1454 on Thursday, its lowest level since July 2020.

Sterling was also down at a new 11-month low of US$1.3365. Data showing Britain's economy lagging rivals in the July to September period did little to help.

The yen extended a sharp reversal of recent gains to fall to 114.15 per dollar - close to the Japanese currency's 4-year low of 114.69 reached last month. The Australian and New Zealand dollars recorded 1-month troughs.

Against a basket of currencies, the dollar rose to as high as 95.101, its strongest since July 2020.

"The hawkish re-pricing of Fed policy expectations has reinforced the US dollar's upward momentum from the previous week, in which it had already benefitted from the other G10 central banks pushing back against rate hike expectations outside of the US," said Lee Hardman, currencies analyst at MUFG.

US government bond yields have risen sharply, including the 30-year Treasury yield passing 1.5 per cent.

After the surge in Treasury yields, which rise when bond prices fall, the difference between 5-year US yields and yields at the same tenor in Japan and Germany is wider - in favour of Treasuries - than at any time since early 2020.

Emerging market (EM) currencies have also suffered from the dollar's broad rise, with MSCI's EM currencies index suffering its sharpest drop in 2 months.

The Australian and New Zealand dollars slipped, pulled lower by the jump in the US dollar. The Aussie fell half a per cent to a 1-month low of US$0.7287 and the kiwi dropped 0.6 per cent to US$0.7013.

Elsewhere, Turkey's lira tumbled to a new record low of 9.97 to the dollar after the US inflation reading, and as expectations grow Turkey will cut rates again soon. REUTERS