Rising US yields help dollar higher

HONG KONG: The dollar hit a three-week high against the yen in early trade on Wednesday and was holding firm against other majors, supported by rising US Treasury yields, which hit two-week peaks overnight.

The dollar rose as far as 130.23 yen, its highest since May 11, extending Wednesday’s 1.1% gain and heading back towards its 20-year peak of 131.34 hit in May.

The euro was at $1.0654, having fallen 0.81% to a 10-day low overnight, and sterling was at $1.2485 after losing 0.96% on Wednesday.

This left the dollar index on the front foot at 102.53.

“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 US Treasury yields - the 10 year is now back near 3% - equity markets have been struggling and the US dollar strengthening.

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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.

The US benchmark 10-year yield hit a two-week high of 2.951% on Wednesday after data showed US manufacturing activity had picked up in May as demand for goods remained strong, which could allay fears of an imminent recession. US job openings also remained at high levels.

Yields have been rising as the US 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.

The 10-year yield was a touch softer in early Asia at 2.9145%.

Traders are looking to more US employment data due later Thursday and to Friday’s US payroll data.

They are also starting to turn their minds towards 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 little changed at $0.717, and bitcoin was trading around $29,800, having fallen overnight, unable to sustain its push above $30,000 earlier in the week.