Dollar holds steady after rising to a two-week high

by Jonathan Adams

The index tracking the U.S. currency against its major rivals jumped to 105.18 overnight, the highest since May 14

The dollar held steady on Thursday after rising to a two-week peak as a rout in U.S. Treasuries pushed up yields, boosting the currency’s allure.

The index tracking the U.S. currency against its major rivals jumped to 105.18 overnight, the highest since May 14, and was marginally down at 105.05 in early European trading.

A two-day, 15 bps jump above 4.6% for long-term Treasury yields helped push the dollar up. The increase in yields, which move inversely to prices, has been driven by a series of stronger-than-expected data, comments from Fed officials, and a run of poorly received bond auctions.

The euro suffered as U.S. yields rose, declining 0.5% on Wednesday to hit a two-week low of $1.0789 overnight before rising somewhat to $1.0806.

If you look at euro-dollar volatility it’s exceptionally low, according to Chris Turner, head of global markets at ING. It’s going to need some big new input to break euro-dollar out of recent ranges. So by recent standards, yesterday’s 0.5% move was quite large.

People will today be keeping an eye on the bond market to see if there’s any further sell-off, he said, saying the solid demand for a Japanese government bond auction could help steady global debt on Thursday.

The yen was the biggest mover on Thursday morning in Europe, with the dollar 0.4% lower against the Japanese currency at 157.08 after hitting a one-month high of 157.72 the previous day.

Charu Chanana, head of FX strategy at Saxo Bank, said traders may be nervous about nearing the 158 level with the threat of intervention by Japanese authorities looming in the background.

Market players suspect Japan intervened to prop up its currency at the end of April and early May; data out tomorrow is likely to confirm that.

Japanese authorities intervened near this level on May 1, and the market now views 158 as a crucial point for potential intervention, Chanana added.

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