Dollar at 10-month top as US yields spike; yen slides

By Tom Westbrook

SINGAPORE (Reuters) – The dollar stood by 10-month highs against a basket of major currencies on Tuesday, supported by U.S. bond yields scaling 16-year peaks, while the yen tiptoed deeper into the intervention danger zone.

A combination of resilient economic data, hawkish Federal Reserve rhetoric and a budget deficit to be financed by borrowing has the up more than 45 basis points (bps) in September to top 4.5% for the first time since 2007.

Rates markets are priced for an almost 40% risk of another Fed hike this year, against slimmer chances for another rise in Europe, and the difference has helped prop up a dollar many had bet would swiftly fall as the Fed signalled an end to hikes.

The euro nursed Monday’s 0.5% drop and was parked by a six-month low at $1.0584. It’s on course for a 3% drop in the quarter, its worst quarterly percentage loss for a year.

Sterling is also set to snap three quarters of gains, with a loss of 3.8% over the three months to September. It fell to a six-month low of $1.2195 overnight and traded only a whisker above that level in the Asia session. [GBP/]

The touched its highest since November at 106.1 on Monday and was at 106.03 on Tuesday.

“From here it eyes levels around 107.20,” said analysts at Australia’s Westpac bank. “Few currencies will resist the bullish dollar macro resiliency theme and the euro and look more vulnerable than most.”

Last week also brought more signs that central banks beyond the Fed are reaching the end of their hiking cycles.

The Swiss franc has tumbled through its 200-day moving average to hit its lowest since June after the central bank surprisingly kept short-term rates on hold.

The yen has slowly but inexorably slid toward the 150-per-dollar mark as policymakers stuck with ultra-easy settings.

The psychological level is seen as a likely red line for the finance ministry, whose warnings of possible intervention have stepped up in recent weeks. Traders have an eye on a Tuesday meeting of political leaders and Bank of Japan officials.

The yen hit 148.97 to the dollar on Monday and last traded at 148.88.

Rising commodity prices have provided some support to the antipodean currencies, though they have been mostly sideways for the past month or so. The was last steady at $0.6417 and the at $0.5962. [AUD/]

China’s yuan held at 7.3099, but only thanks to its trading band midpoint being fixed some 1400 bps firmer than forecast, leaving it very close to the weak end of its allowed trading band.[CNY/]

U.S. consumer confidence and home sales data is due later on Tuesday, with slight weakening seen on both fronts though there are doubts that that could much dent the dollar.

“Even if the U.S. economy is headed for a slowdown, the dollar could find support on the back of haven demand given broad based concerns over weak global growth,” said Rabobank’s senior FX strategist Jane Foley.

“We remain of the view that the dollar is unlikely to weaken significantly until Fed rate cuts are firmly on the horizon,” she said. “We are currently trading fairly close to our long-held euro/dollar $1.06 target. We see downside risk to this.”

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Currency bid prices at 0056 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0584 $1.0592 -0.07% -1.22% +1.0596 +1.0581

Dollar/Yen

148.8950 148.8200 +0.04% +0.00% +148.9000 +148.7450

Euro/Yen

157.58 157.71 -0.08% +12.32% +157.7100 +157.3900

Dollar/Swiss