Dollar boosted by US Treasury yields

LONDON (Reuters) – FX SIGNALS – The U.S. dollar climbed to its highest in more than five weeks, while other major G10 currencies dropped, as higher U.S. Treasury yields made the dollar more attractive to investors.

U.S. Treasury yields have surged since the end of last week, after the Federal Reserve said it will likely begin reducing its monthly bond purchases as soon as November and hinted that interest rate hikes may follow.

At 1132 GMT, the U.S. dollar index was up 0.2% at 93.6, having earlier hit 93.67, its highest since Aug. 20.

“It’s squarely down to the yield performance in the U.S. bond market,” said Neil Jones, head of FX sales at Mizuho.

“Ten-year Treasuries have crossed that psychological border, 1.5%. Amongst major economies around the world, it’s tough to get 1.5% return on a currency and now the dollar interest rates are pushing in that direction so it makes (the dollar) more attractive.”

FX SIGNALS

Risk aversion exacerbated the currency market moves, Jones said, with equity markets down.

The Australian dollar, which is seen as a liquid proxy for risk appetite, was down 0.5% at $0.72525.

The euro was down 0.1% versus the dollar at $1.1686.

US DOLLAR INDEX

“Amidst the many cross-currents in FX markets right now – energy, Evergrande, US debt ceiling, Delta – one theme that seems to be gaining traction is that the market lies on the cusp of re-assessing the path for the Fed tightening cycle,” ING strategists wrote in a note to clients.

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The Japanese yen dropped to its lowest in nearly three months against the dollar, down 0.3% on the day at 11.385 as of 1140 GMT.

The yen is the G10 currency most correlated with U.S. two-year and 10-year Treasury yields, MUFG currency analyst Lee Hardman said in a note to clients.

The offshore yuan was steady at 6.4606.

China’s central bank said it would protect consumers exposed to the housing market on Monday and injected more cash into the banking system as the Shenzhen government began investigating the wealth management unit of ailing developer Evergrande.

Power shortages in China have stopped production at many factories. Goldman Sachs (NYSE:GS) estimated that as much as 44% of China’s industrial activity has been hit.

Dollar boosted by US Treasury yields

Dollar Up Boosted by Rising Treasury Yields

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