Dollar climbs 11-month top on yen, Nikkei adds 0.4 per cent on bets


Devdiscourse News Desk | Updated: 04-10-2018 06:23 IST | Created: 04-10-2018 06:05 IST
Dollar climbs 11-month top on yen, Nikkei adds 0.4 per cent on bets

The dollar climbed an 11-month top on the yen on Thursday as stunningly strong U.S. economic data drove Treasury yields to their highest since mid-2011, while Japanese stocks attempted to reclaim a 27-year peak.

The Nikkei added 0.4 per cent on bets the falling yen would boost sales and profits at Japan's many exporters.

Higher U.S. yields are anything but favourable for emerging markets, however, as they tend to draw away much-needed foreign funds while pressuring local currencies.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.3 per cent in response.

The dollar took off after an influential survey of the U.S. services sector showed activity at its strongest since August 1997, sparking speculation the payrolls report on Friday could also surprise.

"The (ISM) index was significantly above the long-term average during periods of growth and consistent with the upside risks to growth," said Kevin Cummins, senior U.S. economist at NatWest Markets.

"At a minimum, these data suggest that labour demand remains very strong."

Federal Reserve Chairman Jerome Powell declared the economic outlook was "remarkably positive" and said rates might rise above "neutral", currently anywhere from 2.5 to 3 per cent.

As a result, a Fed hike in December is now put at an 8 in 10 chance, while investors lifted expectations for how high rates may eventually go.

Fed fund futures for December 2019 sank to a contract low of 97.12, implying a rate of 2.88 per cent. At the start of this year, they had looked for only 2.1 per cent.

Yields on 10-year Treasury debt spiked 12 basis points to 3.19 per cent, the highest since June 2011. It was the largest daily increase since the shocking outcome of the U.S. presidential election in November 2016.

The jump in yields boosted financial shares, putting the S&P 500 within striking distance of a record.

Financials were also aided by signs Italy would cut its budget deficit and lower its debt, easing concerns that had pressured global stock markets.

The Dow rose 0.2 per cent, while the S&P 500 gained 0.07 per cent and the Nasdaq 0.32 per cent.

The groundswell of economic optimism swept the U.S. dollar to a six-week high on a basket of currencies and it was the last trading at 95.762.

The gains were broad-based with the euro falling back to $1.1476 after being as high as $1.1593 on Wednesday.

The dollar shot to its highest so far this year on the yen at 114.55 and was threatening a major peak from November 2017 at 114.735.

In Asia, the Indian rupee and Indonesian rupiah have been under heavy fire, in part because both countries are being squeezed by the soaring cost of imported oil.

Oil prices have reached four-year peaks as the market focused on upcoming U.S. sanctions on Iran while shrugging off the year's largest weekly build in U.S. crude stockpiles.

Brent eased back 48 cents to $85.81 a barrel early on Thursday, while U.S. crude fell 36 cents to $76.06.

(With inputs from agencies.)

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