The dollar hovered near a two-month high on Tuesday as volatile oil prices and a rapid climb in Treasury yields provided support. However, gains were constrained as traders awaited US data this week for insights into the Federal Reserve’s rate trajectory. The euro traded close to its lowest point in three months at $1.1367 following indications from the European Central Bank’s chief regarding cautious measures to address inflation. Sterling was steady at $1.3248, remaining close to a three-month trough. The dollar index, which measures the US currency against a basket of peers, was a touch higher at 101.2 and on track for a 1.8% advance this month, its best performance since June. Oil prices experienced a modest increase, with Brent crude futures hovering around $106 a barrel. This uptick occurred as market participants expressed scepticism regarding the potential effectiveness of renewed efforts to resolve the Iran conflict, particularly following US President Donald Trump’s dismissal of Tehran’s ceasefire proposal.
Meanwhile, a deepening selloff in U.S. Treasuries has driven yields to new heights, with the 10-year benchmark reaching its highest level since 2007 and the 30-year hitting its peak since 2004. The yield on the two-year note, which is sensitive to monetary policy, increased to its highest level in over two years, approaching 5% at the close. The dollar is experiencing modest gains at present as investors anticipate US data later in the week. Meanwhile, markets have become increasingly indifferent to fluctuations in oil prices, and a global bond sell-off has mitigated the positive impact on the dollar from rising Treasury yields, according to Joseph Capurso. “We’re more likely to get stronger US economic data which shows that the US economy is exceptional, and I think that’s going to help to push up US interest rates compared to elsewhere, and help push up the US dollar.”
US data releases later in the week, including the PCE price index on Wednesday and nonfarm payrolls on Friday, are both anticipated to bolster the argument for additional Federal Reserve rate hikes. Markets are currently pricing in a probability exceeding 70% for a rate hike by the Federal Reserve at the end of October, an increase from 57% observed just a week prior, as indicated by CME Group’s FedWatch tool. The Reserve Bank of Australia is anticipated to increase the key rate later on Tuesday, with the Australian dollar and the kiwi both trading 0.1% lower at $0.7013 and $0.5660, respectively.
The Japanese yen experienced a slight depreciation to 157.40 per dollar, relinquishing a portion of Monday’s advance following remarks from Japan’s chief currency diplomat, Atsushi Mimura. He emphasised that markets ought to pay attention to the “very clear” warning issued by Tokyo and Washington last week regarding the yen, which has left traders apprehensive about the potential for intervention. Elsewhere, the offshore yuan remained relatively stable at 6.71 per dollar following the three-day summit between Trump and Chinese President Xi Jinping last week, which produced limited results.
