The dollar climbed to one-month peaks against the yen on Tuesday on the back of broadly higher US Treasury yields, while the euro was weighed down by uncertainty about a new debt deal for Greece. The euro sank below $1.13 in morning trade in Europe, but recovered some losses after a report said European officials would make a compromise proposal to give Athens another six months to negotiate a deal.
US Treasury yields, whose rise has been a key argument for the dollar's strength since the middle of last year, have jumped 20 basis points since early on Friday, after the release of a strong US non-farm payrolls report. That move has supported the greenback overall, especially versus the Japanese currency, though some analysts say the dollar may be hard-pressed to surge again in the absence of a major market driver. "The dollar strengthening trend longer term still seems to be intact and it is really a yield story," said Tony Bedikian, head of global markets at Citizens Commercial Banking in Boston.
"US economic conditions have been favourable compared to the euro region and other foreign economies. The market has been pricing in roughly a 50-50 shot of Federal Reserve hike sometime during the summer, but then it should still be data dependent." In late New York trading, the dollar was up 0.3 percent against a basket of currencies. Against the yen, the dollar gained 0.6 percent to 119.46 yen. Earlier, the dollar hit a one-month high of 119.61 yen.
The euro, meanwhile, slipped 0.1 percent to $1.1315. "Everybody's trying to get on the right side of what's going to happen with Greece," said John Doyle, director of markets at Tempus Consulting in Washington. "I think there's some positioning on the euro on either side of $1.13." Fears that Greece's new government could be inching its way out of the single currency in a standoff with Germany have begun to weigh on the euro this week.
The main event overnight was a fall in Chinese inflation to a five-year low, providing support for expectations of further policy easing in China. That boosted Shanghai stocks and spurred a 0.5 percent gain in the Australian dollar to US $0.7767. The Australian dollar is closely tied to the outlook for its main Asian trading partner.
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