SINGAPORE: The dollar stood by 10-month highs against a basket of major currencies on Tuesday, supported by US bond yields scaling 16-year peaks, while the yen tiptoed deeper into the intervention danger zone.
A combination of resilient economic data, hawkish Federal Reserve rhetoric and a budget deficit to be financed by borrowing has the 10-year Treasury yield up more than 45 basis points in September to top 4.5% for the first time since 2007.
Rates markets are priced for an almost 40% risk of another Fed hike this year, against slimmer chances for another rise in Europe, and the difference has helped prop up a dollar many had bet would swiftly fall once short-term rates peaked.
As US yields rose, the euro lost 0.5% overnight, hitting a six-month trough of $1.0575 and setting a course for its worst quarterly drop in a year, down about 3%.
Sterling is also set to snap three quarters of gains, with a loss of 3.8% over the three months to September. It fell to a six-month low of $1.2195 overnight and traded only a whisker above that level early in the Asia session.
The US dollar index touched its highest since November at 106.1.
“From here it eyes levels around 107.20,” said analysts at Australia’s Westpac bank. “Few currencies will resist the bullish dollar macro resiliency theme and the euro and Chinese yuan look more vulnerable than most.”