Dollar Holds Firm After Reaching Two-Week High Amidst Rising Treasury Yields

The U.S. dollar maintained its strength on Thursday, following a recent surge to a two-week high fueled by a rout in U.S. Treasuries, which pushed up yields and increased the currency’s attractiveness.

The dollar index, which tracks the greenback against a basket of major currencies, reached 105.18 overnight, its highest point since May 14th. It experienced a slight pullback to 105.05 in early European trading.

The surge in long-term Treasury yields, driven by stronger-than-expected economic data, hawkish remarks from Federal Reserve officials, and poorly received bond auctions, has boosted the dollar’s appeal.

The euro weakened as U.S. yields climbed, falling 0.5% on Wednesday to touch a two-week low of $1.0789 overnight before partially recovering to $1.0806. Analysts noted the euro’s low volatility and highlighted the need for significant new information to break it out of its recent range.

The yen experienced the most notable movement on Thursday morning, with the dollar losing 0.4% against the Japanese currency, trading at 157.08. This followed a one-month high of 157.72 reached the previous day. Market watchers speculate that traders are nervous about approaching the 158 level due to the potential for intervention by Japanese authorities.

Sterling, which reached a more-than-one-month high earlier this week, also fell 0.5% on Wednesday and remained relatively unchanged at $1.2704.

Expectations for Federal Reserve interest rate cuts this year have been tempered by signs of persistent inflation, including a surprising uptick in consumer sentiment revealed in recent data.

Traders now see a 56.6% probability of a quarter-point cut by the end of the September meeting, slightly lower than the 57.5% odds observed a week ago.

Revised U.S. GDP figures are due later today, followed by the much-anticipated release of the Personal Consumption Expenditures price index, the Fed’s preferred inflation measure, on Friday. Additionally, price data for the eurozone is expected on Friday, following a stronger-than-expected April inflation reading for Germany on Wednesday.