The US dollar edged slightly lower on Wednesday, lingering just below its five-month high, as the 10-year Treasury note rekindled gains that had been lost last week.
The dollar index that measures the greenback’s strength against a basket of six major currencies gained 0.2 percent to $93.41, hovering close to its highest level since December 22 of 93.45 achieved on Tuesday.
The currency’s renewed strength came as the issue in the Korean Peninsula softens and the risk of a full-scale trade war between the US and China lessens, allowing investors to consult the 10-year yield for signs.
The dollar dropped 0.1 percent to 1.2860 against its Canadian counterpart, while it increased 0.01 percent to 0.10013 against the Swiss franc.
US 10-year Treasury Yield Rise Above 3 percent Barrier
The dollar has climbed higher since mid-April and recovered most of its 2018 losses, following a reevaluation of the course of the US monetary policy against other countries.
FX strategist Viraj Patel said the momentum definitely appears to support further rise of the dollar, with little to prevent the 10-year yields reaching 3.20.
The rise halted last week after April US consumer price index (CPI) growth of 0.2 percent missed expectations of 0.3 percent, though it did not last as a better-than-expected April US retail sales growth of 0.3 percent bolstered the 10-year bond yield to a seven-year high of 3.095.
The US 10-year Treasury note last stood 0.6 percent lower to 3.061, but was also staying near its seven-year peak.
The Federal Reserve’s statement during its policy meeting in May about inflation nearing the 2 percent has been a contributing factor for the yields’ optimism.
The central bank hiked rates in March and expects to increase rates two more times this year, although several investors forecast three hikes as a possibility.
The dollar was down by 0.1 percent to 110.13 against the yen, after reaching 110.45 on Tuesday, its highest since February 5. Senior FX strategist Junichi Ishikawa said the greenback’s advance against the yen could stall, if the negative impact of higher yields on equities is prolonged.
Japan’s gross domestic product (GDP) data did not much have an effect on the safe-haven currency. The country’s GDP growth fell by 0.6 percent in the first quarter, which is its first economic weakness in nine quarters, amid losses in investment and consumption, and weaker export growth.
The Aussie, meanwhile, added 0.2 percent to 0.7491 against the dollar, while the kiwi gained 0.3 percent to 0.6888 against the greenback, after hitting a five-month low of 0.6851.
The pound shed 0.2 percent to 1.3469, after recording its weakest level since December 29 of 1.3452 on Tuesday.
The euro edged 0.4 percent lower to 1.1786 against the dollar, after falling to its lowest since December 22 of 1.1815 overnight.
The currency shrugged off reports about Italy’s anti-establishment 5-star Movement and far-right League’s plan to seek pardon from the European Central Bank (ECB) about a €250 billion ($296 billion) Italian debt.
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