The dollar continues its rise, driven by Trump and bond rates

The dollar gained further ground against almost all major currencies on Tuesday, accompanying the rise in bond rates, boosted by the prospect of an inflationary and protectionist Trump presidency. Around 8:50 p.m. GMT, the greenback gained 0.34% against the single European currency, at 1.0619 dollars per euro. Earlier, it had risen to $1.0595, a first in a year.

“The (American) election has released forces that have not yet been exhausted”commented Marc Chandler of Bannockburn Global Forex. “Caution suggests not predicting a short-term peak.” For the analyst, the «greenback» accompanies the acceleration of American bond rates and the increase in yield spreads with other countries or currency zones. The market sees a new Trump presidency which will widen the deficit and the debt, which, combined with a wave of customs duties, will strengthen inflation and boost rates as well as the dollar.

Record spreads with other currencies

The difference between rates on 2-year US Treasury bills and their German equivalent reached its highest level in almost two years on Tuesday. Compared to the Canadian 10-year rate, the margin is the largest ever observed. In the case of China, it is only a breath away from the historic record, which dates from April. “Until these gaps stabilize, I don’t see the dollar stopping”warns Marc Chandler. “The market is incorporating positive developments for the United States, but also bad news elsewhere”explains the analyst.

The triumphant election of Donald Trump as President of the United States and the Republican wave in Congress contrast with the political crisis at work in Germany and the difficulties of the fragile majority in France, he insists. “The momentum is considerable”abonde Brad Bechtel, the Jefferies, “and confidence at extreme levels. But nothing has yet been put in place.” by the future Trump government, tempers the analyst. “So at some point there is going to be a correction”warns the analyst, because the real estate developer will not take office for two months, an eternity on the foreign exchange market. “If I am an investor, I need to see what is actually applied before rushing into certain investments”including the dollar, insists Brad Bechtel. “I think what’s happening now is a little premature.”