By Chelsey Dulaney and Ben Eisen in New York and Yantoultra Ngui in Kuala Lumpur, Malaysia
The dollar extended its powerful rally, spurring central banks in developing countries to take steps to stabilize their own currencies and threatening to create headwinds for the long-running U.S. expansion.
The U.S. currency moved closer to parity with the euro after rising for the 10th straight day, the dollar's longest winning streak against the euro since the European currency's inception in 1999. The dollar also moved higher against the yen, which fell to its weakest levels against the U.S. currency since May 30.
The gains are even greater against manyemerging-market currencies, prompting central banks in a number of countries to intervene to slow the slide. The Mexican peso has fallen 11% against the dollar to record lows since the election, while the Brazilian real has tumbled 6.3%.
The currency's gains make foreign goods and travel cheaper for U.S. consumers and could give a boost to exports from Japan and Europe. But they also are reigniting fears that the dollar's strength could slow U.S. corporate profit growth and intensify capital flight from the developing world, which would complicate the prospects for economic growth.
"The strong dollar is destabilizing for markets, for foreign assets, for emerging-market nations that pay back their debt in dollars," said Jonathan Lewis, chief investment officer Fiera Capital Inc. "That's pretty significant."
The dollar's gains have been driven by bets that fiscal spending and tax cuts proposed by President-elect Donald Trump willspur U.S. economic growth, as well as by the rising probability that the Federal Reserve will raise interest rates next month. Fed Chairwoman Janet Yellen said Thursday that the central bank could act "relatively soon."
The ICE U.S. Dollar Index, which measures the U.S. currency against six others, reached its highest level in more than 13 years Friday. It is up 3.4% since the Nov. 8 presidential election, a period in which the dollar has reversed its recent losses against the euro, yen and Swiss franc.
Late Friday in New York, the euro was at $1.0591, from $1.0627 late Thursday, while the greenback bought Yen110.90, from Yen110.13 Thursday. For the week, the dollar gained 2.5% versus the euro and 4% against the yen.
The speed of the move has set off reactions by monetary officials around the world. Indonesia's central bank has intervened repeatedly in the past week by selling dollars and buying government bonds in hopes of slowing the rupiah's slide. China intervened as well, setting the currency lower for several days but using state-owned banks to prevent the yuan from falling too far, traders said.
Mexico's central bank raised interest rates on Thursday, as the country grapples with a weaker peso and uncertainty over the future of its relationship with its largest trading partner. Mr. Trump has vowed to renegotiate a trade pact with Mexico and Canada.
Malaysia cracked down on trading in the futures market in an effort to damp speculation on its currency. The country's central bank entered markets to defend the ringgit after it weakened more than 4% against the dollar, its assistant governor said Friday.
Officials also cajoled offshore banks to stop facilitating trades that could help speculators bet against the currency.
Despite measures taken, economists said the power of central bankers to stem the tide of the market moves is limited."There is little any individual central bank can do to halt the slide in their currency while money is flowing into the U.S. dollar," said Greg McKenna, chief market strategist at foreign-currency broker AxiTrader. "Sometimes in markets, you just can't stand in the way of a Mack truck roaring down the highway."
A stronger dollar can hurt demand for U.S. products overseas, where they become more expensive, and reduce the value of international sales when translated back to dollars. That could put the tepid recovery in U.S. corporate profits at risk.
Earnings for S&P 500 companies rose by a modest 3% for the third quarter after declining for five straight quarters, according to FactSet data, though 5% of companies have yet to report earnings for that period.
Analysts expect profits to rise 3.4% in the fourth quarter, down slightly from 3.7% growth projected the day before the election, FactSet data show.
In an earningscall Wednesday, Cisco Systems Inc. said it has seen weakened demand from customers abroad, in part because of "incredible currency headwinds." Chief Executive Chuck Robbins said some of Cisco's customers have delayed capital spending "until they had better clarity around the currency situation."
Beverage maker Coca-Cola Co. forecasts that currency swings will cut as much as 9% from its pretax profit this year.
Investors already are betting on companies that generate most of their revenue in the U.S. and are less exposed to currency fluctuations. Shares in S&P 500 companies with more than 90% of their revenue from inside the U.S., such as Kohl's Corp., have climbed 5.2% since the election. Shares in companies that generate the majority of their revenue outside the U.S., like International Business Machines Corp., have edged up 2.2% in the same period, according to research firm Bespoke Investment Group.
A rising U.S. currency also boosts U.S. purchasing power, making Italian suits and New Zealand wine cheaper. In doing so it helps make struggling economies in Europe and Japan more competitive, potentially easing the deflationary strains of the global economy.
Still, a stronger dollar tightens financial conditions because it makes it more costly for those outside the U.S. to borrow dollars. It also gives companies less money to spend by restraining profits.
A Goldman Sachs Group Inc. gauge of how restrictive U.S. financial conditions are to growth has risen this past week to its highest level since March. The index takes into account factors like credit spreads and the strength of the dollar.
Emerging markets have issued a record $409 billion in dollar-denominated debt this year, according to data provider Dealogic. For many, that debt is becoming more expensive to pay back.
At the same time, commodities priced in dollars like gold and oil that many developing countries export have come under pressure as the greenback has strengthened.
Many investors are already dumping developing-country assets. Nearly $11 billion in foreign investment has been withdrawn from emerging-market stocks and bonds since the election, Institute of International Finance data show.
--Ira Iosebashvili and Julie Wernau contributed to this article.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com and Ben Eisen at email@example.com
(END) Dow Jones Newswires
November 18, 2016 19:07 ET (00:07 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.