LONDON - The dollar jumped on Wednesday as strong US retail sales data fuelled bets on earlier Federal Reserve interest rate hikes, with the pound also climbing after inflation in Britain hit its highest for ten years.
The dollar rose to its highest against the Japanese yen since March 2017 after US data on Tuesday showed stronger-than-expected retail sales last month.
With inflation running high, the figures boosted expectations of a rate hike as early as mid-2022. Investors also think the data could encourage the Fed to accelerate the tapering of its asset purchase program.
"Ultimately we're in a place where it looks like growth is still pretty strong," said Mike Bell, global market strategist at J.P. Morgan Asset Management. "The Fed is going to taper before they put rates up, and I think that's supporting the dollar."
The greenback rose as high as 114.98 yen before last changing hands flat at 114.77, with the euro dipping to $1.1263 for the first time since July 2020.
The dollar index - which measures the currency against six rivals - climbed to 96.26, its highest since last July. Its strength weighed on US Treasuries, with benchmark 10-year note yields reaching a three-week high of 1.649 percent in Asian trading hours.
Equity markets held their ground. The broad Euro STOXX 600 edged up 0.2 percent, on course for a sixth day of gains and close to record highs.
German medical tech firm Siemens Healthineers gained as much as 5.5 percent after raising synergy targets from its purchase of US peer Varian earlier this year.
Yet British shares fell 0.2 percent, stifled by the pound hitting its strongest in 21 months against the euro after inflation soared to a 10-year high, bolstering bets for a Bank of England rate hike.
Against the US dollar, sterling gained 0.3 percent to $1.3480, its highest since Nov. 10. Analysts said the BoE would likely raise rates, after surprising investors by keeping policy steady last month.
"Any reversal in expectations is likely not imminent after the inflation data just released," MUFG analysts wrote. "Some well-telegraphed factors helped drive inflation higher... We don’t think the data changes the dial much in terms of the BoE response."
$1 TRILLION INFLOWS
Global equities have seen inflows of around $1 trillion during the last 51 weeks as positive news on coronavirus vaccines emerged, Goldman Sachs said in a note, adding this year has already seen four times the inflows of the previous best year.
"The understandable growing attraction of real assets (those that provide some hedge against inflation) is pushing up equity index levels and driving investors to move increasingly away from negatively yielding cash and bonds," the strategists said.
The MSCI world equity index, which tracks shares in 50 countries, fell 0.1 percent.
Wall Street equity futures gauges were flat.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan skidded 0.3 percent from Tuesday's near three-week closing high and was set for its biggest fall this month, snapping seven days of gains.
US President Joe Biden and Chinese leader Xi Jinping turned down some of the heat in Sino-US tensions in talks on Tuesday, though both sides held to entrenched positions on a range of issues.
The positive tone offered a slight but brief boost to Asian shares. The Biden-Xi summit "had the potential to do damage but seems not to have done so," said Rob Carnell, head of research for Asia Pacific at ING.
Oil prices slipped after data showed US gasoline inventories fell more than expected last week, heightening pressure on US authorities to release oil from emergency reserves.
US crude dipped 0.6 percent to $80.27 a barrel. Brent crude fell 0.5 percent to $81.96 per barrel.
(Reporting by Tom Wilson in London and Alun John in Hong Kong; Editing by Simon Cameron-Moore and Bernadette Baum)