Dollar Stays Near Recent Highs on Higher US Treasury Yields

The dollar camped near its three and a half year high against a basket of other major currencies on Thursday, supported by increased US Treasury yield, led by the 10-year benchmark that topped the 3 percent threshold this week. This was the first time in four years.

The 10-year Treasury yield has recorded a new four-year high of 3.035 percent, led by fear over the swelling supply of government debt, as well as inflationary pressure from rising oil prices.

Any increase in levels past 3.041 percent would put the US benchmark 10-year yield to its highest levels since July 2011. The recent increase in US bond yields has made US-Japan and US-German yield differentials wider further to the greenback’s benefit, making the yen and the euro lower.

“Unless there is a very unlikely massive meltdown in US equity markets, it is doubtful the Fed will waver on a June rate hike,” said Stephen Innes, who is the head of trading in Asia-Pacific for Oanda in Singapore.

“With equity market sentiment holding firm in the face of rising bond yields, the almighty dollar could move through G-10 currency markets like wrecking ball,” added Innes.

The US dollar index, which gauges the greenback’s strength against six other major currencies, settled at 91.136 after rising to a high of 91.261 on Wednesday, which was its strongest since January 12.

Meanwhile, Wall Street crept into the positive territory on Wednesday with optimism over a string of optimistic earnings reports, even if that was partially offset by the anxiety caused by soaring US bond yields and corporate expenses.

The euro gained 0.2 percent to $1.2179, though it was still within spitting distance from a nearly two-month low of $1.2160, which was recorded on Wednesday.

The European Central Bank is expected to keep policy untouched on Thursday, squashing worries over the recent softness in the euro zone economy as well as leaving opportunities open to the undoing of its generous bond purchase scheme by the end of the year.

Meanwhile, the dollar set a 2 and a half month high of 109.49 yen, but it later eased to 109.30 yen, 0.1 percent lower.

The dollar may take some major technical levels near 110 yen soon, according to Teppei Ino, an analyst for MUFG Bank in Singapore.

So far this month, the dollar has gained 2.8 percent against the yen, on track for its biggest monthly gain since November 2016.

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