Wednesday 17:00 GMT. The dollar hit a fresh 13-year high and shorter-dated US Treasury yields were their highest since 2010 as robust US data suggest that the world’s biggest economy is in ruder health than thought.
US durable goods orders rose 4.8 per cent in October, beating expectations for a 1.5 per cent increase, according to a Reuters poll of analysts. The report is notoriously volatile, and stripping out transport, orders rose 1 per cent for the month.
But this was also above forecasts of a 0.2 per cent advance and, all told, the data added to thinking that the US economy is already humming along quite nicely as President-elect Donald Trump plans to give it an additional boost with his mooted massive infrastructure spending plan.
The news lit a fuse under the dollar as traders bet that the Federal Reserve, which is expected to raise borrowing costs by 25 basis points next month, may have to quicken the pace of future hikes.
“The dollar is more a symptom than a cause,” said John Canally, chief economic strategist at LPL Financial. “All of this positivity on the Fed and the economy is bleeding into the dollar.”
Market moves were probably being exacerbated by thin attendance in US dealing rooms as many investors travel ahead of the Thanksgiving break. Wall Street is closed on Thursday and will be open for just half a day on Friday.
The dollar index, which tracks the US currency against a basket of its peers, though primarily the euro, was up 0.7 per cent to 101.75, its highest since March 2003. The single currency was down 0.6 per cent to $1.0560, its weakest since March 2015, while the Japanese yen was sliding 1.2 per cent to ¥112.51, its softest since March.
Fixed income markets were getting hit hard by the prospect of tighter US monetary policy and the inflation implications of a fiscal boost at a time of already decent economic growth.
The two-year Treasury yield, which is particularly sensitive to changes in expectations for the Fed’s monetary policy, at one point rose as high as 5 basis points to 1.146 per cent.
Meanwhile, the 10-year Treasury yield jumped 7bp to 2.39 per cent, a 15-month high, while equivalent maturity German Bunds added 4bp to 0.26 per cent, the latter receiving an additional lift from reports that the European Central Bank is tweaking its repo market requirements.
UK gilts surged 8bp to 1.44 per cent as they also absorb news of increased borrowing contained in the government’s Autumn Statement. Sterling was flat at $1.2423.
The lurch higher in implied borrowing costs gave Wall Street an excuse to pull back from record highs. The S&P 500 index, which hit a high earlier in the week, had eased 0.2 per cent to 2,198 by midday in New York.
“Economic strength and rising optimism for the year ahead acts as a double-edged sword,” said Jay Morelock, an economist at FTN Financial. “All-time highs in the stock market, the highest bond yields in over a year, and rising inflation expectations are all supported by improved economic data.”
In commodities, gold was battered by the surging dollar and higher interest rates, with bullion sliding $24 to $1,188 an ounce. Gains for the yellow metal, which had a stellar first half of the year, have been trimmed back to 12 per cent.
“Gold and not least silver remain troubled by the current focus on rising dollar and bond yields,” said Ole Hansen, head of commodity strategy at Saxo Bank. With ETF holdings of gold lower for nine straight days, he added: “With the potential of between 100 and 200 tonnes of gold having been bought above current levels, the risk of further long liquidation remains high.”
Oil’s recent rally stalled. Brent crude recorded strong gains at the start of the week on renewed hopes that Opec members would agree to a supply cut at a meeting later this month. Its advance was tempered in New York on Tuesday, and on Wednesday Brent was down 26 cents to $48.86 a barrel.
Reporting by Jamie Chisholm in London, Peter Wells in Hong Kong and Nicole Bullock in New York
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