An investor reflected in a wall as he uses his phone while sitting in front of boards displaying stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia, November 9, 2016. Reuters/Steven Saphore

The dollar vaulted to 13 1/2-year highs against a basket of major currencies as US bond yields rose, leaving Asian stocks vulnerable to potential rotation out of emerging markets to the United States.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3% in early trade to hover just above its four-month low touched earlier in the week. It looks set to log its fourth straight week of losses.

The dollar’s rise, however, was a boon for Japan’s exporter-driven Nikkei average, which rose 0.9% to a 10-month high.

On Wall Street, the benchmark S&P 500 index rose 0.5% to within a hair of its record high as bank stocks were boosted by bets on higher interest rates and consumer discretionary stocks were helped by favourable economic data and earnings.

US consumer prices posted their biggest increase in six months, while housing starts surged to a nine-year high and jobless claims fell to the lowest level since November 1973.

All these data fit nicely into the current market’s theme that US inflation is likely to accelerate under Trump administration’s policies such as tax cuts, increased fiscal spending and more trade protection for domestic industries.

The 10-year US Treasuries yield rose to 2.326%, its highest since January. The two-year US Treasuries yield rose to a 10 1/2-month high of 1.058%.

“I think the rises in US yields have been driven by excessive optimism in the stock market on Trump’s economic policies,” said Shuji Shirota, head of macro economic strategy at HSBC in Tokyo.

Rising yields reflect market players’ reassessment of the Fed’s policy path down the road, although Federal Reserve Chair Janet Yellen told the Joint Economic Committee of Congress on Thursday that Trump’s election has done nothing to change the Federal Reserve’s plans for a rate increase “relatively soon.”

Yet market perceptions have clearly changed, with money market futures pricing in about a 90% chance of a Fed rate rise in December.

They are also pricing in one or more rate increases next year, a sea change from before the election when they priced in a less than 50% chance of a 2017 rate hike, assuming the dovish Yellen would be extremely cautious in raising rates.

The dollar rose to 110.34 yen, its highest level since early June. The euro slumped to US$1.0620, a low last seen almost a year ago.

The dollar’s index against a basket of six major currencies rose above its “double top” touched in March and December of 2015. The index now stands at its highest level since 2003.

“Double top” is a technical analysis term describing a currency (or other liquid asset) rising to a high, falling, and then rising again to the same level. Breaking the double top is often seen as a bullish sign by technical analysts.

Gold slumped to 5 1/2-month low of US$1,211.6 per ounce and oil prices, which have been supported by hopes the Organization of the Petroleum Exporting Countries (OPEC) would reach an agreement to cap production at its meeting in Vienna on Nov. 30, were hit by the dollar’s strength. US crude futures slipped to US$45.05 per barrel from Thursday’s two-week high of US$46.58.

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