The US dollar rallied to a seven-week high on Monday as investors bought the greenback on the rise in the 10-year US Treasury yield toward the psychologically important 3 percent level, leaving the euro and yen lower. The 10-year yield hit its highest in over four years at 2.998 percent, driven by worries about the growing supply of government debt and accelerating inflation as oil and commodity prices climb.
The strong dollar also reflected an improved outlook on trade. US Treasury Secretary Steven Mnuchin said on Saturday he may travel to China, a move that could ease trade tensions between the world's two largest economies. A stronger dollar "was the trend overnight, mostly due to positive sentiment on trade," said Sireen Harajli, currency strategist at Mizuho in New York.
Rising US bond yields have not always fed through to a higher dollar in 2018 as US political uncertainty and geopolitical tensions have sometimes caused a breakdown between interest rates and currency performance. But with the 10-year Treasury yield closing in on 3 percent and the gap between US and German government bond rates at a 29-year high, the dollar was bought across the board.
Against a basket of currencies the dollar index rose 0.6 percent to 90.849, its highest level since March 1. The euro fell by 0.6 percent to a 2-1/2 week low of $1.2213 , not helped by a survey showing business activity in April stabilizing across the euro zone.
The Australian dollar skidded to its weakest since December 13, falling to as low as $0.7613, while sterling and New Zealand dollars also dropped. The yen slumped 0.7 percent to 108.48 yen per dollar, its weakest since February 13.