On Tuesday, the US dollar surged to a fresh 10-month high due to a significant rise in US bond yields, reaching levels not seen since October 2007. Concurrently, the Japanese yen resumed its decline, sparking concerns among traders about potential government intervention.
Federal Reserve policymaker Neel Kashkari remarked on Monday that, given the robustness of the US economy, interest rates should likely rise once more and be maintained at elevated levels until inflation retreats to 2%. His statements contributed to the spike in the yield of the 10-year US Treasury bond, which serves as the global benchmark for borrowing costs, reaching 4.566% on Tuesday.
It’s important to note that bond yields move inversely to bond prices. The attractiveness of the US dollar was bolstered by these higher yields, propelling the dollar index to 106.2, the highest level since late November 2022.
As of the latest data available, the index, which measures the dollar against six major currencies, showed a 0.11% increase, standing at 106.07. The euro, on the other hand, remained relatively stable against the dollar at $1.0588 after hitting its lowest point since March at $1.057.
“The dollar is exhibiting remarkable strength; it’s truly exceptional,” remarked Joe Tuckey, the head of FX analysis at Argentex broker. “It’s a testament to the outstanding performance of the US, which is challenging to dispute. We’re consistently observing robust data coming from there.”
The dollar’s rally inflicted further damage on the Japanese yen, which slipped below the 149 per dollar threshold for the first time since October 2022, touching 149.19. The dollar last recorded a 0.12% gain against the yen, reaching 149.06.
Analysts and traders consider the 150 level as a potential intervention point for Japan’s finance ministry, whose warnings about potential currency intervention have grown more frequent in recent weeks. The political leaders’ meeting and discussions with Bank of Japan officials on Tuesday are being closely monitored by investors. Finance Minister Shunichi Suzuki stated on Monday that authorities would not rule out any currency-related options if excessive volatility persisted, and Bank of Japan Governor Kazuo Ueda affirmed the central bank’s intent to closely coordinate with the government on foreign exchange matters. Adam Cole, RBC Capital Markets’ chief currency strategist, noted, “Intervention risk is still elevated, with our model indicating a probability of around 20%.”
In other developments, the British pound dipped to its lowest level since mid-March, touching $1.2168 and subsequently falling by 0.34% to $1.2171. This decline followed the Bank of England’s decision to maintain interest rates at 5.25% the previous week, along with a series of unfavorable economic indicators. Tuesday marked the one-year anniversary of the pound’s crash to a historic low of $1.0327 against the dollar, which occurred after a disastrous budget announcement by then-Prime Minister Liz Truss.
Additionally, the Swiss franc depreciated to its lowest point since March, with an exchange rate of 0.915 francs to the dollar. This depreciation has been ongoing since the Swiss National Bank unexpectedly chose to maintain interest rates last week.