Dollar holds firm, supported by higher yields By Reuters

Dollar holds firm, supported by higher yields By Reuters

© Reuters. FILE PHOTO: US dollar notes are seen in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File Photo

By Alun John

HONG KONG (Reuters) – The dollar hit a three-week high against the yen in early trade on Thursday and held its gains against other majors, supported by this week’s advances in US Treasury yields, which hit two-week peaks overnight.

The dollar rose as far as 130.23 yen, its highest since May 11, extending Wednesday’s 1.1% gain and heading back towards its 20-year peak of 131.34 hit in May.

The euro was at $1.0653, having fallen 0.81% to a 10-day low overnight, and sterling was at $1.247 after losing 0.96% on Wednesday. This left the on the front foot at 102.53.

“If you look at the equity market, at bonds, at dollars, it all sort of joins up,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:).

“In the last 48 hours or so we’ve seen a reversal in declines in US Treasury yields – the 10 year is now back near 3% – equity markets have been struggling and the US dollar strengthening. saw last week, when there was talk of a possible pause in the tightening cycle.”

“Also I think the euro has pretty much done what it can do on the upside ahead of the ECB meeting next week, because a lot is priced in now,” he added.

The US benchmark 10-year yield hit a two-week high of 2.951% on Wednesday after data showed US manufacturing activity had picked up in May as demand for goods remained strong, which could allay fears of an imminent recession.

US job openings also remained at high levels.

Yields have been rising as the US Federal Reserve has raised interest rates quickly in an attempt to bring red hot inflation under control while hoping to avoid pushing the economy into recession.

This surge stopped last week after Atlanta Fed President Raphael Bostic raised the possibility of a pause in interest rate rises at the Fed’s September meeting, depending on the inflation situation and the economic impact of higher rates.

The 10-year yield was last at 2.9168%.

Traders are looking to more US employment data due later Thursday and to Friday’s US payroll data.

They are also starting to turn their minds towards next week’s European Central Bank (ECB) policy meeting, at which the central bank is expected to give more details about its plans for rate increases.

Elsewhere, the Australian dollar was a touch softer at $0.7161, and bitcoin was trading around $29,800, having fallen overnight, unable to sustain its push above $30,000 earlier in the week.

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