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US Yields Surge, Pushing Dollar to 10-Month High and Yen Down

The US dollar has reached a 10-month high against a basket of major currencies, buoyed by rising US bond yields and strong economic data. The 10-year Treasury yield has climbed over 45 basis points in September, surpassing 4.5% for the first time since 2007. Markets are pricing in a 40% chance of another interest rate hike by the Federal Reserve this year, strengthening the dollar. Meanwhile, the euro and Chinese yuan are seen as vulnerable to a bullish dollar, while the Swiss franc and Japanese yen have weakened due to the end of their respective central bank tightening cycles.

Sterling and the euro are both set to experience quarterly losses, with sterling down 3.8% and the euro down about 3%. The US dollar index has hit its highest level since November, reaching 106.1, and analysts believe it could rise to around 107.20. The yen has steadily declined and is approaching the 150-per-dollar level, with the finance ministry potentially intervening. Rising commodity prices have offered some support to antipodean currencies, but they have remained mostly stagnant over the past month.

Despite concerns of a slowdown in the US economy, the dollar may still find support due to global growth worries. Until the prospect of Fed rate cuts becomes more certain, the dollar is unlikely to weaken significantly. Analysts suggest there may be a downside risk to the euro/dollar exchange rate, which is currently close to the long-held target of $1.06.

In summary, the US dollar is trading at a 10-month high against major currencies, supported by rising US bond yields and positive economic data. Central banks, such as the Fed, are expected to continue tightening policies, strengthening the dollar compared to other currencies. However, there are concerns about the potential for a slowdown in global economic growth, which could impact the dollar’s strength in the future. Additionally, specific currencies, including the euro and yuan, are considered vulnerable to the recent bullish dollar trend.

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