The dollar index gained 0.32% to 104.43, after jumping to 104.57, its highest since July 30
The dollar jumped above 153 against the yen for the first time in almost three months on Wednesday on U.S. economic strength and an expected divergence among major global central banks’ pace of interest rate cuts.
The dollar is on track for its 16th gain in 18 sessions and fourth consecutive week of gains as a run of positive economic data has dampened expectations about the size and speed of rate cuts from the Fed, which has pushed U.S. Treasury yields higher.
The yield on benchmark U.S. 10-year notes gained 3.4 bps to 4.24%, after reaching a 3-month high of 4.26%. After dropping for five successive months, the yield on the 10-year is up nearly 40 bps for October.
Investors were also positioning ahead of the U.S. presidential election on November 5.
We have gone from phase one to phase two, if you like, the phase one being that the recovery being all about the U.S. economy, the strong data that we’ve had coming out over the past month or so, and this second phase could be all about politics, said George Vessey, lead FX strategist at Convera in London.
But the bias for a stronger dollar in the short term probably from here is going to be more of potential Trump hedges rather than the rate story which arguably is overblown, but having said that you continue to see yields surging higher, he said.
The dollar index gained 0.32% to 104.43, after jumping to 104.57, its highest since July 30. The euro was 0.18% lower at $1.0778 after declining to $1.076, its lowest since July 3. Sterling dropped 0.49% to $1.2919.
Recent comments from Fed officials have suggested the central bank will take a gradual approach to cutting rates.
Markets are pricing in an 88.9% chance for a cut of 25 bps at the Fed’s November meeting, with an 11.1% chance of the central bank holding rates steady, CME’s FedWatch Tool shows. The market was completely pricing in a cut of at least 25 basis point a month ago, with a 53% chance of a 50 basis point cut.