Surging bond yields lift dollar to 11-month high in New York

The 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. 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 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 dollar index was 1.1 percent higher at 100.10 after touching 100.22 earlier on Monday, its highest since December 3, 2015. The benchmark 10-year Treasury note yield rose as high as 2.30 percent, 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, 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 percent at $1.073 after hitting its lowest level against the greenback since December 3, 2015, while the dollar was up 1.8 percent at 108.43 yen after reaching its strongest level since June 23.
The yield on 10-year German Bunds hit 0.397 percent, the highest since late January, and the yield on 10-year Japanese government bonds ended at -0.013 percent, hovering at its highest level in two months. The yuan has weakened on worries that Trump and the Republican-controlled US Congress may slap tougher restrictions on Chinese imports. The Chinese currency was down 0.5 percent against the dollar at 6.8596 yuan.