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NEW YORK (Reuters) - The U.S. dollar hit an 11-month peak against a basket of currencies on Monday as the risk of faster inflation and wider budget deficits sent Treasury bond yields shooting higher.
On Wall Street, the Dow Industrials set a record high led by financial stocks, on the expectation of looser regulations and consumer protections that could lift profits. Indexes turned negative in mid-morning trading, weighed by declines in the technology sector.
The dollar .DXY traded above the eye-catching 100 level against the world's other major currencies .DXY. The euro slumped to its lowest versus the greenback since January and the yen was at its weakest since June.
The dollar has been romping ahead since Donald Trump's win in the U.S. presidential election last week triggered a massive selloff in Treasuries.
"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."
Trump's win 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.
Yields on the U.S. 10-year Treasury notes climbed to their highest since December at 2.302 percent US10YT=RR, while 30-year paper climbed above 3.06 percent, also the highest since December. German 30-year yields touched their highest since March above 1.06 percent, but gave up most of the day's rise.
Though selling moderated in early North American trading, analysts said they see no end in sight for the overall move lower in bond prices and higher in yields.
"I think there’s more to go. I think we’ve topped out as far as the value of bonds," said Tom Simons, money market economist at Jefferies and Co.
"Trump is talking about running an extremely loose fiscal policy, higher spending and lower taxes, and his trade and immigration policies suggest that the labor market is going to get even tighter. All of that adds up to a pretty high inflation environment in the future."
Rising inflation hurts bond prices because it makes their future interest payments worth less.
The stampede from bonds has seen 30-year yields post their biggest weekly increase since January 2009 and the 50-basis-point move in 10-year bonds is the equivalent of two standard interest rate hikes.
The market has priced in a 77-percent chance of a 25 basis points rate increase at the upcoming Federal Reserve meeting, scheduled for next month.
Bank stocks were the leading force on Wall Street, with the S&P 500 bank index .SPXBK touching its highest level since March 2008. However a drop in the biggest tech companies, which also carry the largest market capitalizations, kept the S&P 500 in negative territory.
The Dow Jones industrial average .DJI rose 16.27 points, or 0.09 percent, to 18,863.93, the S&P 500 .SPX lost 3.56 points, or 0.16 percent, to 2,160.89 and the Nasdaq Composite .IXIC dropped 22.49 points, or 0.43 percent, to 5,214.62.
Emerging market stocks .MSCIEF hit their lowest since July and MSCI's gauge of stocks across the globe .MIWD00000PUS fell 0.5 percent.
By contrast, Japan's Nikkei .N225 jumped 1.7 percent to its highest since February, boosted by a weaker yen.
In commodities, the strong U.S. dollar put pressure on gold, which fell for a third consecutive session despite its appeal as an inflation hedge. Copper rose 0.2 percent after earlier gaining as much as 3.4 percent CMCU3.
In the oil market, Brent crude fell to its lowest in three months as the prospect of another year of oversupply and weak prices overshadowed chances that OPEC will reach a deal to cut output.
U.S. crude CLc1 was down 2.6 percent at $42.30 a barrel and Brent LCOc1 last traded at $43.65, down 2.5 percent on the day.
Reporting by Rodrigo Campos, additional reporting by Dion Rabouin and Richard Leong in New York and Amanda Cooper in London; Editing by Nick Zieminski