Dollar hits 11-month high as U.S. bond yields jump

By Richard Leong

NEW YORK (Reuters) - The dollar rose to an 11-month high against a basket of major currencies on Monday, in step with a jump in U.S. bond yields as traders bet fiscal and trade policies under a Donald Trump administration would stoke inflation.

Trump's stunning U.S. presidential win last week also sparked expectations of similar victories in Europe in the coming months. Worries over a rising tide of nationalist sentiment and restrictions on trade across Europe put pressure on the euro, analysts said.

China’s yuan fell to its weakest against the dollar since before the launch of its offshore market in 2010.

"A lot of the move with the dollar has to do with higher yields," said Christopher Vecchio, currency analyst at FXCM in New York. "It's a seismic moment for markets."

The dollar index was 1.1 percent higher at 100.16 after touching 100.20 earlier Monday, which was its highest since Dec. 3, 2015. <.DXY>

The benchmark 10-year Treasury note yield rose to 2.26 percent early on Monday, its highest since early January, while a bond market gauge on investors' 10-year inflation expectations climbed to its highest level in over two years.

U.S. yields have lifted European and Japanese yields as those economies continue to struggle with weak growth and inflation. This could force the European Central Bank and Bank of Japan to stick to their ultra-loose monetary policies for a longer period, analysts said.

The euro shed 1.2 percent at $1.072 after hitting its lowest level against the greenback since Dec. 3, 2015, while the dollar gained 1.6 percent at 108.30 yen after rising to its strongest level since June 23.

The yield on 10-year German Bunds was 0.368 percent, the highest since late January, and the yield on 10-year Japanese government bonds was -0.016 percent, hovering at its highest level in two months.

The yuan has weakened on worries over Trump and the Republican-controlled Congress may slap tougher restrictions on Chinese imports.

The Chinese currency was down 0.5 percent against the dollar at 6.8596 yuan.

(Additional reporting by Patrick Graham in London; Editing by Dan Grebler)

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