Dollar Edges Higher, US Bond Yields Reach 4-Year High

The US Dollar reaches its two-week high against a basket of major currencies on Monday.

Almost reaching its two-week high of 90.477, the dollar index closed 90.445 in the early Asian trade against its basket of six major peers.

The euro fell to a two-week low of 0.39 percent against the US dollar at $1.2248. This makes euro reach its biggest drop in two months. Investors trimmed record high bets before a European Central Bank meeting his week, and policymakers are largely expected to signal no change in policy.

Also, the dollar hit a two-month high of 107.89 against the yen. It rose 0.2 percent from 107.85 yen in the last US trade on Friday. The yen attracts demand in times of economic uncertainty and market turmoil, and sell off when confidence returns.

Stephen Innes, Oanda’s Asia-Pacific head of trading said, “The dollar momentum is probably going to carry the way at least until the next negative headline comes out.”

“Even traders who had been bearish on the dollar seem to be looking for opportunities to take long positions, with the greenback seen underpinned for now by higher U.S. bond yields,” Innes added.

“Besides concerns over geopolitical risks, worries over US-China trade tensions also appear to be waning,” Innes remarked.

RELATED: U.S. Dollar Rises Against Major Asian Currencies

Yield Rise Supports US Dollar

Rising US bond yields supported the dollar, as the US 10-year Treasury yield reaching its peak of 2.968 percent. This is the yield’s highest since January 2014; it rose 2 basis points from the late US trade on Friday.

"Higher US yields have contributed to the rise in the dollar," said Chuck Tomes, senior investment analyst at Manulife Asset Management in Boston.

The yield rise came after US Treasury yields pushed higher last week. A steady US economy makes the Federal Reserve officials impose a further increase of interest rate this year. On the other hand, heads of the European Central Bank (ECB) and the Bank of England (BOE) makes no rush in pushing rates as a result from falling economic data out of the UK and Europe.

Teppei Ino, MUFGBank’s analyst in Singapore said that recent rises in global oil prices could lead to inflationary pressures. US debt insurance, in addition, are likely contributing to the rise in Treasury yields.

"So this rise in yields is probably not something that should be welcomed," Ino said.

"The market reaction, for now, is for the dollar to strengthen, but at the same time the dollar index hasn't risen above its recent trading ranges," Ino added.

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