Rising U.S. yields boost dollar

by Jonathan Adams

As the dollar gained, the euro handed back part of a small rally as the first round of France’s election turned out more or less in line with polling

The dollar was supported by rising U.S. yields and the focus was on low-yielding currencies on Tuesday such as China’s yuan and Japan’s yen, which was pinned to its lowest since 1986.

Benchmark 10-year Treasury yields added almost 14 bps to 4.479% overnight, with analysts attributing the move to expectations of Donald Trump winning the U.S. presidency and raising tariffs and government borrowing. On Tuesday, it was last at 4.443% in Asian hours.

As the dollar gained, the euro handed back part of a small rally as the first round of France’s election turned out more or less in line with polling. The euro was down 0.11% to $1.07287.

Trump’s better (debate) showing over Biden added to expectations that inflation may pick up pace, yield curves will steepen further and that the USD may continue to trade at a premium, according to OCBC currency strategist Christopher Wong.

The yen dipped to 161.745 per dollar on Tuesday, its weakest in almost 38 years, extending a downward slide driven mainly by a wide gap in interest rates between the U.S. and Japan.

Japan’s finance minister said on Tuesday the authorities were vigilant to sharp currency market moves, but stopped short of giving a clear intervention warning.

The currency was also dipping as yen bears were wary that the dollar/yen pair was at risk of intervention by Japanese authorities.

Against the euro, the yen hit an all-time low of 173.67 on Monday and was just short of that level on Tuesday, while against the Australian dollar, the yen was near its lowest level in 33 years as carry trade remained attractive.

All eyes are now on Friday night’s U.S. non-farm payrolls report, with Japanese currency officials desperately hoping it shows signs of sharp labour market cooling to help ease the pressure on themselves and the battered yen, according to Tony Sycamore, market analyst at IG.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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