(Corrects days by 0.5% that fall in paragraphs four and 11 on Wednesday, from Tuesday)
Authors: Harry Robertson and Kevin Buckland
LONDON/TOKYO (Reuters) – The dollar held steady on Thursday after rising to a two-week high as a failure in U.S. Treasuries sent yields higher, making the currency more attractive.
The index tracking the U.S. currency against its major peers rose overnight to 105.18, its highest level since May 14, and was slightly lower at 105.05 in early European trading.
A two-day 15-basis-point jump above 4.6% for long-term Treasury yields helped support the dollar. The rise in yields, which move inversely to prices, comes amid a wave of better-than-expected data, tough words from Federal Reserve officials and a series of poorly received bond auctions.
The euro suffered as U.S. bond yields rose, falling 0.5% on Wednesday to hit a two-week low of $1.0789 overnight before recovering slightly to $1.0806.
“If you look at the euro-dollar volatility, it is extremely low,” said Chris Turner, head of global markets at ING. “A new, large contribution will be needed to push the euro-dollar out of recent ranges. So by recent standards, yesterday’s 0.5% move was quite large.”
“People will be watching the bond market today to see if there is further selling,” Turner added, saying solid demand for the Japanese government bond auction could facilitate stabilize global debt on Thursday.
The yen was the biggest mover in Europe on Thursday morning, with the dollar falling 0.4% against the Japanese currency at 157.08, after hitting a one-month high of 157.72 a day earlier.
Charu Chanana, head of currency strategy at Saxo Bank, said investors may be nervous as the 158 level approaches, with the threat of intervention by Japanese authorities looming in the background.
Market participants suspect Japan intervened to support its currency in delayed April and early May; data released tomorrow will likely confirm this.
“Japanese authorities intervened near this level on May 1 and the market currently sees the 158 level as a critical point for potential intervention,” Chanana said.
Sterling, which hit its highest level in over a month earlier this week, also fell 0.5% on Wednesday, last trading at $1.2704, little changed on the day.
Expectations for Federal Reserve interest rate cuts this year have been tempered amid signs of persistent inflation, most recently after a surprise surge in consumer sentiment on Tuesday.
According to CME Group’s (NASDAQ:) FedWatch Tool, traders now have a 56.6% chance of a quarter-point cut by the end of the September meeting, down from 57.5% a week ago.
Revised U.S. GDP data will be released later in the day, followed on Friday by the week’s main macro event, the release of the Personal Consumption Expenditures Price Index – the Fed’s preferred measure of inflation.
Price data in the euro zone will also be published on Friday, after a stronger-than-expected April inflation reading in Germany on Wednesday.
(This story has been corrected to change the day of the 0.5% decline from Tuesday to Wednesday, in paragraphs four and 11)
