The US dollar has reached a 10-month high against other major currencies, causing the euro and sterling to hit 6-month lows and keeping the yen at intervention levels. The anticipation of higher US interest rates has gripped the market, leading to stabilisation of US Treasuries after a significant sell-off. The euro is on track to lose over 3% for the quarter, making it the worst quarterly performance in a year, while sterling is heading for a quarterly loss of more than 4%. The US dollar index reached a 10-month high of 106.32.
The rise in US Treasury yields has had a negative impact on the yen, which is near an 11-month low against the dollar. The dollar/yen pair is highly sensitive to changes in long-term US Treasury yields, particularly the 10-year yield. The decline of the yen towards 150 per dollar has put traders on alert for signs of intervention from Japanese authorities, as officials increase their rhetoric against the weakening currency. However, even if there were intervention, it would not permanently drive down the dollar/yen unless bond yields start to retreat.
In other news, the Australian dollar fell by 0.30% to $0.6380, remaining unaffected by a report showing an increase in inflation in Australia last month. The Reserve Bank of Australia (RBA) is likely to maintain its rates at 4.1% at their next meeting. The Swedish krona has outperformed other major currencies, strengthening against the dollar and euro, after the central bank announced a reduction in risk by hedging part of its forex reserves. The US dollar has slipped over 1% against the Swedish currency this week, making it the largest weekly drop since mid-July.