Dollar Surges to 10-Month High as U.S. Bond Yields Rise
London/Singapore – The U.S. dollar reached a new 10-month high on Tuesday, fueled by the surge in U.S. bond yields to their highest level since October 2007. Meanwhile, the Japanese yen continued its decline, prompting concerns among traders about potential government intervention.
Neel Kashkari, a Federal Reserve policymaker, stated on Monday that given the robustness of the U.S. economy, interest rates should rise again and be kept at higher levels until inflation recedes to 2%. His remarks contributed to a spike in the yield on the 10-year U.S. Treasury, which currently stands at 4.566%. It’s worth noting that bond yields move inversely to prices.
As U.S. yields climbed, the appeal of the dollar surged, pushing the dollar index to 106.2, the highest since late November 2022. The dollar index, which measures the performance of the currency against six major peers, recorded a 0.11% increase, reaching 106.07.
The euro remained relatively flat against the dollar, standing at $1.0588, after touching its lowest level since March at $1.057.
Joe Tuckey, the head of FX analysis at broker Argentex, described the dollar’s strength as “extraordinary.” He added, “It’s just exceptionalism in the U.S., it’s very hard to argue with. We’re just seeing that consistently strong data there.”
The Japanese yen succumbed further to the rally in the dollar, breaking through the 149 per dollar mark for the first time since October 2022, hitting 149.19. Currently, the dollar is up 0.12% against the yen at 149.06.
Analysts and traders see the yen sliding toward the 150 level as a potential trigger for intervention by the Japanese finance ministry, which has recently increased warnings of possible intervention. The upcoming Tuesday meeting of political leaders and Bank of Japan officials is being watched closely by investors.
Finance Minister Shunichi Suzuki emphasized on Monday that if excessive volatility persists, authorities will not rule out any options regarding currencies. Similarly, Bank of Japan Governor Kazuo Ueda stated that the central bank will coordinate closely with the government on foreign exchange matters.
According to Adam Cole, RBC Capital Markets’ chief currency strategist, the probability of intervention remains elevated, with their model putting it at approximately 20%.
In other currency news, the British pound dropped to its lowest level since mid-March at $1.2168, down 0.34% at $1.2171. This follows the Bank of England’s decision last week to maintain rates at 5.25% and a series of disappointing economic data.
Today marks one year since the pound plummeted to a record low of $1.0327 against the dollar after a disastrous budget announcement by then-Prime Minister Liz Truss.
The Swiss franc also experienced a decline, reaching its lowest level since March at 0.915 francs to the dollar, following the unexpected decision by the Swiss National Bank to hold interest rates unchanged last week.
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Currency bid prices at 0759 GMT
– All spots
– Tokyo spots
– Europe spots
– Volatilities
– Tokyo Forex market info from BOJ
Reporting by Harry Robertson in London and Tom Westbrook in Singapore; Editing by Jamie Freed, Kim Coghill, and Alexander Smith
Our Standards: The Thomson Reuters Trust Principles.
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