Treasury yields rise with the dollar rises, battering the yen in early trade

27 Sep 2023 , 10:22 AM

In contrast to the yen, which slid towards a highly watched intervention zone, the dollar traded at a 10-month high against its major peers on Wednesday as Treasury yields remained high on the expectation of higher U.S. rates for longer.

In early Asian trading, the pound fell to $1.2145, a new six-month low, as it struggled against a stronger dollar. It was destined for its worst quarterly fall in a year, one of more than 4%.

The U.S. dollar index last traded at 106.20, down from its previous session’s 10-month high of 106.26, while the euro remained close to Tuesday’s six-month low and last exchanged hands for $1.0569.

After keeping interest rates unchanged last week but hardening its hawkish stance on monetary policy, Fed policymakers have recently raised the possibility that the central bank may need to hike rates even further.

As a result of the money markets adjusting their estimates of when U.S. rates could peak and for monetary conditions to remain tighter for longer than previously believed, U.S. Treasury yields have reached multi-year highs.

The benchmark 10-year yield last stood at 4.5254%, down from the previous session’s 16-year high of 4.5660%. The yield over two years was 5.0582%.

The rising U.S. rates portend trouble for the yen, which dipped to an 11-month low of 149.185 on Tuesday before edging slightly higher to 149.01 per dollar.

In general, fluctuations in long-term U.S. Treasury rates, particularly on the 10-year front, have a significant impact on the dollar/yen pair.

As Japanese officials intensify their rhetoric against the weakening yen, the yen’s gradual but steady drop near the psychological level of 150 per dollar has kept traders on high alert for any signals of intervention from the government.

Financial markets view the 150 zone as a danger zone that might prompt Japanese authorities to step in, as they did last year.

Ahead of Australian inflation statistics anticipated later on Wednesday, the Australian dollar declined elsewhere, falling 0.04% to $0.6395.

To $0.5948, the New Zealand dollar increased by 0.06%.

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