Published:  12:33 AM, 29 September 2017

Dollar, bond yields higher

Dollar, bond yields higher A sign displays the crest and name of the London Stock Exchange in London, Britain. -Reuters

The dollar and global borrowing costs rose on Thursday after President Donald Trump proposed the biggest shake-up of the U.S. tax system in three decades and strong data supported the case for another Federal Reserve rate hike later this year.

The dollar's strength pressured many emerging market currencies and commodities, but Europe's main stock markets gave Trump's blueprint the cautious thumbs up after Wall Street and Japan's Nikkei had gained overnight.Banks rose 0.7 percent to fresh seven week highs, though that was partly offset as miners struggled .SXPP and as underwhelming results from one of Europe's biggest fashion chains, H&M, weighed on retailers.

The prospect of higher U.S. debt levels and expectations for another Fed hike had sent 10-year Treasury yields to their highest since mid-July, with the 2-10 year yield curve steepening to its highest in a month.

The week's dollar rally continued, meantime. Its gains were most marked against Japan's yen, where it probed above 113 yen. Traders also eyed the jump in Japan's 10-year government bond yield toward levels where the Bank of Japan would be expected to buy bonds to maintain its zero percent target for long-term rates.

Euro/dollar meanwhile held just above $1.17 EUR, with European benchmark bond yields climbing in the slipstream of Treasuries too.The 10-year TransAtlantic yield gap between U.S. and German debt widened to 185 basis points however, which was its widest since early July.

"The market had given up on the Trump reflation trade and this is coming back with a bit more detail on tax plans," said Commerzbank analyst Rainer Guntermann."At the same time, this gives the Fed more ammunition to hike rates in the coming months."

-Reuters, London

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