Dollar’s Strength Pushes Yen to 38-Year Low, Investors Eye Fed Chair’s Speech

The U.S. dollar continued its upward trajectory on Tuesday, bolstered by rising U.S. Treasury yields, while putting pressure on low-yielding currencies like the Chinese yuan and the Japanese yen, which plunged to its weakest level against the dollar since 1986.

Dollar Strength Driven by Rising U.S. Yields

Benchmark 10-year Treasury yields surged nearly 14 basis points to 4.479% overnight, fueled by expectations of a potential Donald Trump victory in the upcoming U.S. presidential election. Analysts suggest that a Trump presidency could lead to higher tariffs and increased government borrowing, contributing to the rise in yields.

The euro, which had briefly rallied following the first round of France’s election, retreated as the dollar gained strength. The single currency was last down 0.2% at $1.07188.

Yen Hits 38-Year Low, Intervention Concerns Rise

The yen weakened further, reaching 161.745 per dollar, its lowest level in nearly 38 years. This decline is primarily attributed to the widening interest rate differential between the U.S. and Japan.

Japan’s finance minister expressed vigilance over sharp currency market moves but stopped short of issuing a clear intervention warning. The yen also weakened against other currencies, with the euro-yen pair hitting a lifetime low and the Australian dollar-yen pair approaching a 33-year low.

Chinese Yuan Under Pressure

Despite robust manufacturing data and the central bank’s announcement of bond borrowing, the Chinese yuan remained under pressure. The offshore yuan traded at 7.3065, nearing its June low, while the onshore counterpart was slightly lower at 7.2712 to the dollar.

Dollar Index and Market Focus

The dollar index, which tracks the greenback against a basket of major currencies, rose 0.1% to 105.94. Investors are now eagerly awaiting jobs opening data and comments from Federal Reserve Chair Jerome Powell at the ECB forum in Portugal for further clues on U.S. monetary policy.

Other Currency Movements

The British pound slipped 0.15% to $1.2632, hovering near its weakest level since mid-May. The Australian dollar also weakened by 0.14% to $0.66515, as traders assessed the Reserve Bank of Australia’s minutes, which revealed discussions about whether policy was sufficiently tight to curb inflation.

Key Takeaways:

• The dollar gained strength due to rising U.S. Treasury yields, pushing the yen to a 38-year low.
• Concerns about potential intervention by Japanese authorities kept the yen marginally supported.
• The euro retreated after a brief rally following the first round of France’s election.
• The Chinese yuan remained under pressure despite positive economic data.
• Investors await U.S. jobs opening data and comments from Fed Chair Jerome Powell for further guidance on monetary policy.
• The Australian dollar weakened as traders weighed the RBA’s minutes.

Overall, the global currency markets remain volatile, with investors closely monitoring developments in U.S. interest rates, geopolitical events, and economic data from major economies. The yen’s weakness and the dollar’s strength are expected to remain key themes in the coming days.