The dollar climbed to a four-month peak against the yen on Thursday, bolstered by the rise in US Treasury yields that suggests a more upbeat outlook for the world's largest economy. US benchmark 10-year yields hit a high of 3.122 percent, the highest in nearly seven years. "The near-term picture remains positive for the dollar with Treasury yields showing few signs of topping, a move that makes the buck a more enticing bet to income-seekers," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Rising yields reflect continued optimism about the US economy, reinforcing expectations that the Federal Reserve would raise borrowing rates at least two more times this year. The dollar rose to its strongest versus the Japanese yen since January 23 at 110.80 yen. It was last at 110.71, up 0.3 percent on the day. The dollar index rose 0.1 percent to 93.461, below its 2018 high of 93.632.
The euro, meanwhile, fell to near a five-month low against the dollar on Thursday on concerns about the demands of populist parties likely to form Italy's next government. Italy's anti-establishment 5-Star Movement and the anti-immigrant League, which are working to draft a coalition program, may ask the European Central Bank to forgive 250 billion euros of debt. But broader Italian markets held up better on Thursday as investors played down the broader impact on euro zone political stability and questioned whether the Italian parties would really follow through on such plans.
The euro slipped to $1.1799, just above the $1.1763 2018 low it hit on Wednesday. The euro has slumped six cents from more than $1.24 in three weeks after a huge dollar rally. Investors are betting US interest rates will need to rise further, while other central banks are postponing monetary tightening. Sterling gave up earlier gains after the UK government dismissed a media report that Britain wanted to stay in the European Union's customs union after Brexit.