The dollar camped near seven-week highs against a basket of currencies on Tuesday after it gained a boost from the rise in the US 10-year Treasury yield toward the psychological barrier of 3 percent.
The US 10-year Treasury yield reached its highest in over four years at 2.998 percent yesterday, pushed by worries over the growing supply of government debt plus inflationary pressures due to swelling oil prices.
The US 10-year bond yield later stepped back from that level and steadied at 2.964 percent in Tuesday’s Asian trade.
Yields have also grown at the short end of the curve. The US 2-year yield has reached a high of 2.483 percent this week. That was its highest since September 2008.
Consequently, the US-German and US-Japan yield differentials have widened for the dollar’s favor, making the euro and yen lower.
“The US dollar has put on a compelling show…as the stars align on the back of higher US yields,” said Stephen Innes, who is the head of trading in Asia-Pacific for Oanda in Singapor. “While it’s a bit early for investors to pack in the consensus short dollar view, the weaker shorts are indeed getting pared,” he added.
The US dollar index, which measures the greenback’s strength against six other major rival currencies, climbed to as high as 91.076, which is its strongest since January 12.
The dollar, meanwhile, hit a two-month high of 108.87 yen and last stood at 108.82 yen, 0.1 percent higher on the day.
On Monday, the dollar had grown nearly 1 percent for its biggest daily percentage rise in nearly one month, gaining more strength after breaking the 108 yen level.
“The break of 108 triggered a lot of stops and buying interest on the options market as well,” said Tareck Horchani, who is the head of sales in Asia-Paciifc for Saxo Markets in Singapore, talking about the dollar’s surge on Monday.
The yen is considered a safe haven that rises during times of economic, political, and geopolitical uncertainties. However, it falls in times of bullish investor confidence. It has recently come under pressure during the recent sessions because of the fizzling out of global trade tensions and geopolitical risks.
Meanwhile, US Treasury Secretary Steven Mnuchin stated over the weekend that he may travel to China, which is a move that could alleviate the tensions between the US and China, the world’s two largest economies.
The euro was steady at $1.2209 after it pared its losses when it fell to $1.2185 earlier. This is common currencies’ lowest level since the 1st of March.
The gains in US bond yields have derailed emerging market currencies and bond market as well as those in Asia.
According to Satoshi Okagawa, higher US yields can pressure currencies of emerging market countries like Indonesia and India. These emerging market countries run account deficits. Okagawa is a senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
The Indonesian rupiah briefly hit two-year low of 13,898 per dollar after its subdued movement early on.
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