Dollar Strengthens as Treasury Yields Boost Allure
New York (June 4) The dollar rose its strongest level in four weeks against the yen as Treasury yields that had reached the highest versus their Group-of-Seven nation peers in almost a month boosted the allure of the U.S. currency.
The dollar rose versus most of its 16 major counterparts before reports this week that economists said will show U.S. employers added jobs last month, adding to the case for the Federal Reserve to move closer to ending stimulus measures. The euro approached its weakest level in almost four months on bets the European Central Bank will boost monetary easing tomorrow. Sweden’s krona jumped after industrial production rose and Australia’s dollar strengthened as economic growth quickened.
“A factor moving the dollar-yen higher is the long-awaited rise in U.S. yields,” said Petr Krpata, a foreign-exchange strategist at ING Groep NV in London. “Plenty of easing is now priced in” to the euro, he said. “With the market clearly focusing on tomorrow’s press conference we wouldn’t expect a major break out of the range today.”
The dollar rose 0.1 percent to 102.65 yen at 7:07 a.m. New York time after advancing to 102.80, the highest level since May 2. The euro slipped 0.1 percent to $1.3620 after falling to $1.3586 on May 29, the lowest level since Feb. 13. The 18-nation shared currency traded at 139.78 yen from 139.69 yesterday.
U.S. companies hired 210,000 workers in May after adding 220,000 the previous month, according to a Bloomberg News survey of economists before ADP Research Institute releases the data today. The Labor Department will say on Friday that payrolls climbed 215,000 last month, a separate survey shows.
Treasury Yields
Treasury 10-year yields climbed to 2.60 percent yesterday, the highest since May 14. The extra yield 10-year notes offer over their G-7 peers expanded to 63 basis points yesterday, the widest since May 12. The spread narrowed two basis points to 61 basis points today.
The Fed will today release its Beige Book report, which looks at current economic conditions in each of its 12 districts. The survey will give the Federal Open Market Committee information about the economy before it meets on June 17-18 to review monetary policy. The central bank is tapering bond purchases amid signs the economy is improving, having kept its benchmark interest rate close to zero since 2008.
“Dollar-yen has benefited from the bounce in U.S. Treasury yields,” said Callum Henderson, global head of foreign-exchange research at Standard Chartered Plc in Singapore. Further gains in the exchange rate “will depend largely on what happens to the back end of the U.S. Treasury curve,” he said, referring to yields on longer-maturity debt.
