Dollar hits at 11-month high after upbeat U.S. data

NEW YORK (Reuters) - The dollar rose on Tuesday to an 11-month high against a basket of currencies as a surprisingly large gain in October U.S. retail sales lifted bond yields to 10-month peaks and supported the outlook for an interest rate increase next month.

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

An early tapering of the surge in U.S. yields tied to President-elect Donald Trump’s election win spurred traders to scale back their dollar holdings. But the greenback pared its losses after the release of retail sales figures revived selling in bonds.

“It’s more a pause day, perhaps marking a period of consolidation for bonds and the dollar,” said Omer Eisner, chief market strategist with Commonwealth Foreign Exchange in Washington.

The Commerce Department said domestic retail sales rose 0.8 percent in October, exceeding the 0.6 percent gain forecast of economists polled by Reuters.

The dollar index, which measures the greenback against six major currencies, was up 0.1 percent at 100.22 after rising to 100.26. It fell as low as 99.45 earlier as U.S. yields were unchanged to lower.

The index rose for a seven straight day, bringing its cumulative gain to 3.23 percent, which marked the biggest such rise in about a year.

The yield on two-year Treasuries rose to 1.029 percent, the highest since early January.

The dollar rose with the jump in yields as Trump’s victory last week led traders to pile on bets that he and a Republican-controlled Congress would embark on tax cuts and federal spending to boost the economy.

However, they could be offset by possible restrictions on immigration and trade, which could hurt business activity, analysts said.

“We don’t know whether and in what form Trump will follow through on what he campaigned on,” said James Chen, head of research at Gain Capital in Bedminster, New Jersey.

The euro, which hit an 11-month low of $1.0709 on Monday, rebounded to $1.0816 before easing to $1.0719, down 0.2 percent on the day.

The dollar was up 0.8 percent at 109.26 yen after advancing to a 5-1/2 month peak at 109.33 yen in late U.S. trading.

The rise in implied volatilities on currency pairs, such as euro/dollar and dollar/yen, suggested caution over a sudden fall in the greenback despite its spectacular gains since last week, said Kazushige Kaida, head of forex trading at State Street in Tokyo.

The onshore Chinese yuan fell to its weakest level in nearly eight years, breaking through 6.85 per dollar.

Additional reporting by Jemima Kelly in London and; Hideyuki Sano in Tokyo; Editing by Dan Grebler and Richard Chang