Dollar hits one-year high on Trump trades

By Chibuike Oguh

NEW YORK (Reuters) -The U.S. dollar advanced to one-year high against major currencies on Wednesday powered by so-called Trump trades and after U.S. inflation for October came in as expected, suggesting the Federal Reserve will continue lowering interest rates.

The greenback hit its highest level since November 2023, buoyed by Donald Trump's victory in last week's U.S. presidential election, which sparked expectations of potentially inflationary tariffs and other measures by his incoming administration.

Trump's Republican Party will also control both houses of Congress when he takes office in January, Edison Research projected on Wednesday, enabling him to push an agenda of cutting taxes and shrinking the federal government.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,rose 0.43% to 106.44 after reaching as high as 106.53.

"I'm not sure the inflation data pushed things around too much since it was pretty much in line with expectations," said Brad Bechtel, global head of FX at Jefferies.

"I think it's just continuation of the Trump trade kind of mindset ... leading to strengthen the dollar on a broad basis but also kind of a flushing of some of the EM [emerging market] long positions."

Labor Department data on Wednesday showed the U.S. consumer price index rose 0.2% for the fourth straight month, in line with economists' expectations, amid higher costs for shelter such as rents. In the 12 months through October, the CPI advanced 2.6%.

U.S. Treasury yields fell following the inflation data, with the 2-year note yield, which typically moves in step with interest rate expectations, dropping 6.5 basis points to 4.279%.

"So certainly there was a lot of concern going into the number as it's just one of the new bricks in this kind of wall of worry; so there's a little bit of a relief rally and yields are lower," said Marvin Loh, senior global market strategist at State Street in Boston.

"It just shows how on edge the market is based on the Fed, based on inflation, and certainly based on this nebulous Trump trade. The dollar seems to be one of the cleanest, easiest ways of playing the Trump trade as well as bitcoin, it seems."

Bitcoin surged past the $90,000 level for the first time, powered by euphoria from Trump's election victory and expectations that his administration will be beneficial to cryptocurrencies. Bitcoin gained 2.75% to $90,734.00. Ethereum declined 3.11% to $3,178.60.

Japan's wholesale inflation accelerated in October at the fastest annual pace in more than a year, complicating the Bank of Japan's decision on how soon to raise interest rates.

The yen broke through 155 per dollar, the Japanese currency's weakest level since late July. It was last at 155.46 yen per dollar.

The euro continued its descent amid expectations of potential Trump tariffs. Political uncertainty in Germany, the bloc's biggest economy, has also weighed on the currency following the collapse of Chancellor Olaf Scholz's governing coalition last week and with snap elections set for Feb. 23.

The euro was down 0.51% at $1.0569. It had dropped to as low as $1.055575, its lowest level since November 2023.

The dollar was flat at 7.243 versus the offshore Chinese yuan. Against the Swiss franc <CHF=EBS>, the dollar strengthened 0.43% to 0.885.

(Reporting by Chibuike Oguh in New York; additional reporting by Medha Singh. Editing by Andrea Ricci, Richard Chang and Cynthia Osterman)