FOREX-Dollar retains its strength, driven by yield growth

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FOREX-Dollar retains its strength, driven by yield growth

“If you look at the equity market, at bonds, at dollars, it all sort of joins up,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank. “In the last 48 hours or so we’ve seen a reversal in declines in U.S. Treasury yields – the 10 year is now back near 3% – equity markets have been struggling and the U.S. dollar strengthening. It’s almost a mirror image of what we saw last week when there was talk of a possible pause in the tightening cycle.” “Also I think the euro has pretty much done what it can do on the upside ahead of the ECB meeting next week because a lot is priced in now,” he added.

This surge stopped last week after Atlanta Fed President Raphael Bostic raised the possibility of a pause in interest rate rises at the Fed’s September meeting, depending on the inflation situation and the economic impact of higher rates. The 10-year yield was last at 2.9168%. Traders are looking to more U.S. employment data due later Thursday and to Friday’s U.S. payroll data.

They are also starting to turn their minds toward next week’s European Central Bank (ECB) policy meeting, at which the central bank is expected to give more details about its plans for rate increases. Elsewhere, the Australian dollar was a touch softer at $0.7161, and bitcoin was trading around $29,800, having fallen overnight, unable to sustain its push above $30,000 earlier in the week.

Story Highlights

  • In early trade on Thursday, the dollar rose to a three-week high versus the yen and retained gains against other major currencies, boosted by this week’s rises in US Treasury rates, which hit two-week highs overnight. The dollar climbed to 130.23 yen, its best level since May 11, extending Wednesday’s 1.1 percent rise and edging closer to the 20-year high of 131.34 set in May. The euro was trading at $1.0653, down 0.81 percent overnight to a 10-day low, and sterling was trading at $1.247, down 0.96 percent on Wednesday. The dollar index is now at 102.53, putting it on the offensive.

  • The U.S. benchmark 10-year yield hit a two-week high of 2.951% on Wednesday after data showed U.S. manufacturing activity had picked up in May as demand for goods remained strong, which could allay fears of an imminent recession. U.S. job openings also remained at high levels. Yields have been rising as the U.S. Federal Reserve has raised interest rates quickly in an attempt to bring red hot inflation under control while hoping to avoid pushing the economy into recession.