Dollar Hits One-Year High Versus Yen as Treasury Yields Rise

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By Peter Nurse

Investing.com - The dollar edged higher in early European trading Tuesday, hitting a one-year high versus the Japanese yen, as U.S. Treasury yields started climbing again on inflation concerns. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.052, a new 4-1/2-month high.

Most of the greenback’s move higher Tuesday has been against the yen, with USD/JPY up 0.3% at 110.15, moving above 110 for the first time since March of last year, with this pair particularly sensitive to movements in U.S. Treasury yields.

The benchmark 10-year Treasury yield last traded at 1.75%, around the 14-month high of 1.7540% touched earlier this month, as accelerating vaccinations, signs of economic recovery and massive U.S. stimulus stoked inflation concerns. President Joe Biden is due to unveil a big new plan for spending on infrastructure later this week, with additional spending plans on childcare and healthcare due to be unveiled after the Easter break.

Elsewhere, GBP/USD was up 0.1% at 1.3771, with sterling holding its own as a number of mobility restrictions are lifted in England on the back of the country’s successful vaccination program, while the risk-sensitive AUD/USD rose 0.2% to 0.7645.

EUR/USD fell 0.1% to 1.1749, at a 4-1/2-month low, on course to fall by around 2.5% this month, the most since mid-2019, as rising Covid-19 cases and renewed lockdowns in the likes of France and Germany dim the short-term outlook for the European economy.

“The EUR/USD bounce failed to make much progress on Friday, probably leaving it vulnerable to 1.1700 this week,” said analysts at ING, in a research note.

The main U.S. economic release Tuesday will be the March CB consumer confidence figure, which is expected to show an improvement as states reopen and the U.S. vaccination program continues apace. 

That said, most eyes will be on the monthly U.S. nonfarm payrolls report, released on Good Friday, with Federal Reserve policymakers continuing to cite weakness in the labor market for their continued accommodative monetary policy stance.

“Getting the USD outlook right will likely prove to be the cornerstone of all good position-taking over summer, which will leave stakes high. We remain USD positive, and find more reasons to start removing reflationary bets than vice versa currently,” said analysts at Nordea, in a note. 

Elsewhere, USD/TRY rose 0.8% to 8.2528 following the news that Turkish deputy central bank governor Murat Cetinkaya has been removed from his post, according to a presidential decree published in the Official Gazette on Tuesday.

This follows President Recep Tayyip Erdogan sacking hawkish former governor Naci Agbal earlier this month and appointing Sahap Kavcioglu, raising fears that the country will return to unorthodox methods to tackle high inflation.