US yields lift dollar and leave yen languishing
2024.07.01 22:17
By Tom Westbrook
SINGAPORE (Reuters) – The dollar was supported by rising U.S. yields and the blowtorch was on low-yielding currencies on Tuesday such as and Japan’s yen, which was pinned to its lowest since 1986.
Benchmark 10-year Treasury yields rose nearly 14 basis points 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.
As the dollar rose, 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 single currency last bought $1.0735.
“Trump’s better (debate) showing over (President Joe) 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,” said OCBC currency strategist Christopher Wong.
The yen sank to 161.72 per dollar on Monday, its weakest in nearly 38 years, extending a downward slide driven mainly by a wide gap in interest rates between the U.S. and Japan.
The yen traded at 161.55 per dollar in Asia on Tuesday and was sinking on crosses as yen bears were wary that the dollar/yen pair was at risk of intervention by Japanese authorities.
Against the euro, the yen touched a lifetime low of 173.67 on Monday and was near that level on Tuesday.
In bonds, at the 10-year tenor, the gap between U.S. and Japanese rates was 340 bps and almost 440 bps at the two-year tenor.
China’s yuan, which hit a seven-month low on the dollar last week and has hardly moved since, faces similar pressure with U.S. 10-year yields more than 220 bps higher than Chinese government bond yields.
Robust manufacturing data in China and an announcement from the central bank that it would be borrowing bonds – likely to sell them and steady falling yields, traders said – gave only the briefest fillip to the currency on Monday.
It was last at 7.3043 in offshore trade on Tuesday, within a whisker of its June trough.
The New Zealand dollar slipped 0.3% in early trade and at $0.6075 was testing support at its 200-day moving average. Sterling was steady at $1.2641.
The Australian dollar hovered within its recent range at $0.6650 with traders focused on central bank minutes to gauge how seriously policymakers are considering interest rate hikes.
Swaps markets pricing implies a one-in-three chance of a rate hike as soon as next month.
“We know they were talked about, the question is, what is the trigger,” said ING economist Rob Carnell. “We are leaning towards forecasting a hike at the August meeting.”
