Dollar at 10-month high; yen down in early trade

26 Sep 2023 , 10:34 AM

Tuesday saw the dollar maintain 10-month highs versus a basket of major currencies thanks to 16-year highs in U.S. bond rates, as the yen edged closer to the intervention danger zone.

The 10-year Treasury yield increased by more than 45 basis points in September, reaching 4.5% for the first time since 2007, as a result of robust economic statistics, hawkish Federal Reserve remarks, and a budget deficit that will be covered by borrowing.

The odds of another Fed hike this year are about 40% higher than the odds of another rise in Europe, and this disparity has supported the dollar, which many had predicted would fall quickly after short-term rates peaked.

The euro dropped overnight by 0.5% as U.S. rates increased, reaching a six-month low of $1.0575 and heading for its worst quarterly decline in a year, down roughly 3%.

With a loss of 3.8% over the three months to September, the sterling is likewise on track to end three-quarters of gains. Overnight, it hit a six-month low of $1.2195 and opened the Asian session just a hair above that mark. 

More evidence that central banks other than the Fed are nearing the conclusion of their cycles of rate increases was presented last week.

The central bank’s unexpected decision to maintain short-term rates steady has caused the Swiss franc to plunge through its 200-day moving average and reach its lowest level since June.

As policymakers persisted in maintaining ultra-easy policies, the yen has steadily but irreversibly fallen towards the 150-per-dollar level.

The psychological level is thought to be a likely threshold for the finance ministry, whose recent warnings of potential action have increased. Traders are keeping a watch on the Tuesday meeting of Bank of Japan executives and political leaders.

The yen last traded at 148.72 to the dollar after reaching 148.97 on Monday.

The antipodean currencies have received some support from rising commodity prices, despite the fact that they have been primarily moving sideways for the previous month or two. The Australian dollar was last stable at $0.6417, and the New Zealand dollar was at $0.5962.

The Chinese yuan was stable at 7.3146 in offshore trade, although pressure has increased due to new worries that the country’s property market mess could suffocate economic growth.

Home sales and consumer confidence data for the United States are coming later on Tuesday. While there has been some small deterioration on both fronts, there is scepticism that it will have a significant impact on the dollar.

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