Dollar hits 10-month high as US yields spike, yen slides

LONDON/SINGAPORE: The dollar rose to a new 10-month peak on Tuesday as U.S. bond yields surged to their highest level since October 2007, while the Japanese yen resumed its slide, putting traders on alert for signs of government intervention.

Federal Reserve policymaker Neel Kashkari said on Monday that, given the strength of the U.S economy, interest rates should probably rise again and be held “higher for longer” until inflation falls back down to 2%.

His comments helped push up the yield on the 10-year U.S. Treasury – the benchmark U.S. yield that sets the tone for borrowing costs around the world – to 4.566% on Tuesday.

Bond yields move inversely to prices. Higher U.S. yields boosted the allure of the greenback, pushing the dollar index to 106.2, the highest since late November 2022.

The index, which tracks the currency against six major peers, was last up 0.11% at 106.07.

The euro was last roughly flat against the dollar at $1.0588, after hitting its lowest since March at $1.057.

“The dollar is just a steamroller, it’s absolutely extraordinary,” said Joe Tuckey, head of FX analysis at broker Argentex.

“It’s just exceptionalism in the U.S., it’s very hard to argue with. We’re just seeing that consistently strong data there.”

A rally in the dollar did further damage to the Japanese yen, which fell past the 149 per dollar mark for the first time since October 2022, hitting 149.19.

The dollar was last up 0.12% against the yen at 149.06. The yen is sliding towards the 150 level that analysts and traders see as a likely red line for the finance ministry, whose warnings of possible intervention have stepped up in recent weeks.

Investors have an eye on a Tuesday meeting of political leaders and Bank of Japan officials. Finance Minister Shunichi Suzuki said on Monday that authorities will not rule out any options on currencies if excessive volatility persists, and Bank of Japan Governor Kazuo Ueda said the central bank will coordinate closely with the government on FX.

“Intervention risk is still elevated, with our… model putting the probability at around 20%,” Adam Cole, RBC Capital Markets’ chief currency strategist, said in a note to clients.

Elsewhere, the British pound slid to its lowest level since mid-March at $1.2168 and was last down 0.34% at $1.2171. It follows the BoE’s decision to hold rates at 5.25% last week and a spate of bad economic data.

Tuesday marks a year since the pound crashed to a record low of $1.0327 against the dollar after then-Prime Minister Liz Truss’s disastrous budget.

The Swiss franc also fell to its lowest since March at 0.915 francs to the dollar, having slid since the Swiss National Bank unexpectedly kept interest rates on hold last week. – Reuters