TOKYO: The dollar scaled a two-week peak against its major peers on Thursday, as a rout in Treasuries improved the currency’s allure due to both higher US yields and demand for safe haven assets.
The dollar pushed to a two-week top versus the euro and extended its rebound from a more than two-month low to sterling following a two-day, 15-basis point jump above 4.6% for long-term Treasury yields.
Spurred by a spate of stronger-than-expected economic data and a run of poorly received auctions, the Treasury market rout has spooked investors, sending global equities sliding sharply and spurring a rush to the safest assets.
The dollar index, which measures the currency against six major peers, including the euro, sterling and the Japanese yen, reached the highest since May 14 at 105.17 on Thursday, following a 0.5% advance in the prior session.
“While countries globally have been debating USD dependence, it still remains a safe haven,” TD Securities strategists wrote in a note outlining “the basis for our medium-term stronger USD view.”
US securities “are still considered the asset of choice in times of uncertainty given high liquidity, stable democratic institutions, deep banking systems, and treatment of most domestic institutions as ‘too small to fail’ with government help ready at hand,” they wrote.
The euro slipped to $1.079375 for the first time since May 14, and sterling sank to $1.2696, continuing its retreat after reaching $1.2801 on Tuesday for the first time since March 21.
The yen, however, climbed off an overnight four-week low of 157.715 per dollar to last trade at 157.36.
Dollar ebbs as markets await key global inflation reports
Japan’s currency has been marching steadily lower this month, heading back toward the 34-year trough of 160.245 from a month ago, which spurred a rapid rebound that market players strongly suspect to have been driven by two rounds of dollar-selling intervention by the Ministry of Finance and Bank of Japan.
Expectations for Federal Reserve interest rate reductions this year have been pared back amid signs of sticky inflation, most recently with a surprise uptick in consumer sentiment in data on Tuesday.
Traders currently see 56.6% odds of a quarter-point cut by the conclusion of the September meeting, down from 57.5% odds a week ago, according to the CME Group’s FedWatch Tool.
Revised US GDP figures are due later in the day, followed on Friday by the main macro event of this week, the release of the Personal Consumption Expenditures (PCE) price index - the Fed’s preferred measure of inflation.
“The deepening rout in the US bond market is fast becoming the BOJ’s worst nightmare, necessitating hurried consideration about the appropriate level to intervene for a third time this year,” Tony Sycamore, senior analyst at IG, wrote in a report.
“The bond market bogey is well-positioned to wrest deeper control of the broader market, particularly if upcoming growth and inflation data are on the firmer side of the ledger.”
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