Dollar peaks in one year as Treasury yields rise
LONDON / NEW YORK (Reuters) – The dollar hit its highest level in a year on Tuesday, following expectations from the U.S. Federal Reserve to announce a cut to its massive bond buying program next month, and as concerns about soaring energy prices have pushed investors into the safe haven greenback.
Yields on two-year U.S. Treasuries hit their highest level in more than 18 months as investors sold U.S. debt, believing that soaring energy prices would fuel inflation and increase pressure on the economy. Fed to take action sooner than expected. [US/]
âRight now, the focus is on Treasury rates,â said Joseph Trevisani, senior analyst at FXStreet.com. “Credit markets are anticipating the start of tapering, I think, in November.”
Investors will be watching closely US Consumer Price Index data on Wednesday and retail sales data on Friday for further clues as to when the Fed may start cutting its stimulus measures.
The dollar index, which measures the greenback against a basket of other major currencies, reached 94.519, its highest since late September 2020.
Soaring US yields prompted investors to shed the Japanese yen against the dollar, leading to the second largest daily decline in the value of the Japanese currency on Monday.
The dollar held close to its three-year highs against the yen, which lost 4% against the greenback in three weeks on Tuesday as Treasury yields continued to rise.
âThe main driver of this move is the further rise we have seen in US Treasury yields – so it’s a pretty straightforward story of a growing rate differentialâ¦ adding to the lure of the carry trade,â Ray said. Attrill, Director of Foreign Exchange Strategy at National Australia Bank.
A monthly Deutsche Bank market sentiment survey this month noted that an overwhelming majority of respondents expect U.S. Treasury yields to rise from current levels.
Oil rose to $ 84 a barrel, set for a three-year high, as a rebound in global demand from the worst of the COVID-19 pandemic has caused price spikes and shortages in d ‘other sources of energy. Coal has reached record highs and gas prices remain four times higher in Europe than at the start of 2021.
The Australian dollar linked to commodities rose 0.07% to $ 0.73515.
The ZEW indicator of economic sentiment in Germany fell for the fifth month, the latest in a series of indicators showing supply bottlenecks slowing the recovery in Europe’s largest economy.
Both the euro and the pound fell 0.14% against the dollar, to $ 1.1537 and $ 1.3577 respectively.
In cryptocurrencies, bitcoin fell 1.41% to $ 56,676. Ether, the world’s second largest cryptocurrency, fell 1.42% to $ 3,493.
Chart: FX performance
Chart: Chart: Global exchange rates here
Reporting by John McCrank; additional reporting by Saikat Chatterjee in London; Editing by Kirsten Donovan and Bernadette Baum