The dollar climbed to a one-year high against the yen on Tuesday amid a spike in Treasury yields, as accelerating vaccinations and massive stimulus in the U.S. stoked inflation concerns.
The safe-haven greenback also found support as investors worried about the potential fallout from the collapse of a hedge fund, identified as Archegos Capital, although those jitters had eased as the Asian trading day got under way.
The dollar rose to a cusp of 110 yen in Asia, a level not seen since March of last year. It’s on track for the best month since late 2016, with the end of Japan’s fiscal year this month driving up dollar demand as companies seek to square their books.
Benchmark 10-year Treasury yields rose as high as 1.7450% in Asia, approaching the 14-month high of 1.7540% touched earlier this month. The five-year note’s yield pushed as high as 0.9170% for the first time since March of last year.
Higher yields make a currency more attractive as an investment.
That climb in the shorter-dated yield will keep the dollar’s upward momentum going, according to Chris Weston, the head of research at Pepperstone Markets Ltd, a foreign exchange broker based in Melbourne.
“The USD has moved into a different realm as an investment destination,” he wrote in a client note.
The euro languished near the 4-1/2-month low of $1.1763 reached on Monday, on course to fall by the most this month since mid-2019.
Tougher coronavirus curbs in France and Germany have dimmed the short-term outlook for the European economy, while a widening spread between U.S. and German bond yields are adding pressure on the single currency.
The dollar index, also known by the code DXY, hovered near a 4-1/2-month high of 92.964 reached on Monday.
“A break of 93.0 is just a matter of time,” Westpac strategists wrote in a report.
“There’s few signs the DXY’s rally has run its course, opening the door to a test of the 2020 Q3 highs of 94.50 for a stretch target.”
The monthly U.S. non-farm payrolls report will be closely watched at the end of this week, with Federal Reserve policymakers so far citing slack in the labour market for their continued lower-for-longer stance on interest rates.
“In a week when the market is feeling so optimistic about the forthcoming payrolls release, it seems very likely that the greenback will find strong support,” Rabobank currency strategist Jane Foley wrote in a report.
However, “the market is in danger of pricing in too much inflation risk,” meaning “we see scope for the USD to soften in the months ahead,” the report said.
President Joe Biden will outline on Wednesday how he would pay for a $3 trillion to $4 trillion plan to tackle America’s infrastructure needs.
Biden said 90% of U.S. adults would be eligible for vaccination by April 19, and 90% of Americans would have a vaccination centre within five miles (8 km) of their homes by then, as his team ramps up its drive to get vaccine shots in people’s arms amid a surge in COVID-19 cases.
In cryptocurrencies, bitcoin pushed back above $58,000 overnight after Visa Inc said it would allow the use of cryptocurrencies to settle transactions on its payment network, in the latest sign of growing acceptance of digital currencies on both Wall Street and Main Street.
The token last traded around $57,000, continuing its recovery from a trough of $50,360 last week. It set a record high at $61,781.83 earlier this month.
Reporting by Kevin Buckland; Editing by Sam Holmes and Kim Coghill