Dollar gains ground and approaches 150 yen as the benchmark Treasury yield rises

20 Oct 2023 , 10:04 AM

Friday saw the dollar come dangerously near to the heavily watched 150 yen mark, helped by a spike in the yield on the US 10-year Treasury note, which in the previous session briefly hit 5% for the first time since 2007.

The benchmark 10-year yield, which was recently at 4.9813%, has increased this week by about 35 basis points due to growing concerns about U.S. fiscal policy and growing predictions that the Federal Reserve will likely hold interest rates higher for longer.

Changes in long-term Treasury rates, especially in the 10-year maturity, are often closely followed by the dollar/yen exchange rate.

While it was still somewhat above its two-week low of $1.2093, which was reached on Thursday, sterling was also down 0.08% at $1.21285.

The rising Treasury yields helped the U.S. dollar gain ground in the wider currency market.

The dollar index increased by 0.08% to 106.29, although a weekly loss was still expected.

In a widely followed speech on Thursday, Federal Reserve Chair Jerome Powell stated that while rising market interest rates may lessen the need for the central bank to intervene, the strength of the US economy and ongoing tight labour markets may necessitate even stricter borrowing restrictions to manage inflation.

According to the CME FedWatch tool, money markets are nearly completely expecting the Fed to hold interest rates at its forthcoming policy meeting, down from a roughly 87% possibility one week ago.

The Australian dollar dropped 0.26% to close at $0.6312, while the euro dipped 0.04% to $1.05755.

The New Zealand dollar fell 0.35% to $0.5829 on Thursday, after plunging to a low of $0.5816, which was more than 11 months ago.

The statistics released earlier this week indicated that New Zealand’s consumer inflation dropped to a two-year low in the third quarter, putting the kiwi on course for a weekly loss of about 1%.

Though it had little effect on the yen, statistics released on Friday in Asia revealed that Japan’s core inflation in September slipped below the 3% barrier for the first time in more than a year, but it remained above the central bank target.

China is scheduled to release its prime lending rates for one and five years later on Friday.

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