FX roundup: Trump-inspired inflation hopes help lever US dollar, sterling higher

The US dollar turned in strong performances across most major crosses on Thursday as investors bet a Donald Trump presidency of the US would see global inflation kick higher.

This had a knock-on benefit for sterling, which has been humiliated on the world's stage since the UK's non-binding Brexit referendum to quit the EU.

At about 17:07 GMT, sterling was up 0.99% to $1.2529, and was up 1.29% to €1.1518. The dollar-spot index was up 0.36% to $98.856, and the greenback rose 0.26% to €0.9191.

Both sterling and the dollar shone versus high-yielding commodity currencies, advancing firmly on the Australian and Canadian dollars. South Africa's rand was particularly hard hit. Sterling's moves higher were more compelling.

Reserve Bank of New Zealand's 25 basis points cut to its benchmark interest rate, taking it to 1.75%, helped sterling up 2.02% to NZ$1.7386 and the dollar up 1% to NZ$1.3876.

Overall, said Jasper Lawler, market analyst at CMC Markets, the outlook for interest rates had been muddied by the uncertainty of a Trump victory.

"But markets continue to price in a December rate hike from the Federal Reserve. It will be easier for the Fed to meet its inflation and employment targets if there is higher fiscal and infrastructure spending by the government," Lawler contended.

"Trump's main policy ideas like increasing tariffs and borrowing for infrastructure spending are inflationary by nature," he added.

Earlier this week, analysts at M&G Investments pondered whether Trump's win had triggered "the end of global austerity," reported Reuters.

The global financial crisis saw inflation skid to historic lows. Inflationary moves in the US, which is the world's largest economy, would naturally ripple outwards to other countries.

FXTM Research analyst Lukman Otunuga said pledges of massive US fiscal spending have heightened expectations of Trump implementing fiscal stimulus measures.

He said these expectations included tax cuts that might serve to bolster profit growth, and thus lever inflation higher.

"Dollar's resurgence was also complimented by the renewed speculations of the Federal Reserve raising US interest rates in December that encouraged buyers to attack.

"This week's aggressive dollar rebound may be fully Trump driven with more time needed for the greenback to find some normality."

Nomura's asset allocation and foreign exchange strategy teams said on Thursday that Trump's offering, at its core, was reflation, Reuters reported.

"That price discovery process on domestic reflation will take a long time to determine."

In economic news, Federal Reserve bank of St.Louis president James Bullard said the US central bank would only need to tighten policy once more over the next two to three years.

He reiterated his pre-election view that the US economy would continue to be in a low-interest rate regime possibly for between two to three years.

"If there is a change of regime, monetary policy would have to adjust," Bullard added, making no reference to the 2016 election result.