US dollar hits 10-month high as US yields spike, yen recovers from dip

THE US dollar rose to a new 10-month peak on Tuesday (Sep 26) as US bond yields hit their highest level since October 2007, while the Japanese yen recovered from an early dip, with traders on alert for signs of government intervention.

Federal Reserve policymaker Neel Kashkari said on Monday that, given the strength of the US economy, interest rates should probably rise again and be held “higher for longer” until inflation falls back down to 2 per cent.

His comments helped push up the yield on the 10-year US Treasury – the benchmark US yield that sets the tone for borrowing costs around the world – to 4.566 per cent on Tuesday. Bond yields move inversely to prices.

Higher US yields boosted the allure of the greenback, pushing the US dollar index to 106.2, the highest since late November 2022. The index, which tracks the currency against six major peers, was last up very slightly at 105.96.

The euro was last up 0.1 per cent against the US dollar at US$1.0596, having hit its lowest since March at US$1.057 earlier in the session.

“The US dollar is just a steamroller, it’s absolutely extraordinary,” said Joe Tuckey, head of FX analysis at broker Argentex.

“It’s just exceptionalism in the US, it’s very hard to argue with. We’re just seeing that consistently strong data there.”

The brief rally in the US dollar did further damage to the Japanese yen, which at one point fell past the 149 per US dollar mark for the first time since October 2022, hitting 149.19.

Finance Minister Shunichi Suzuki on Tuesday said the government is “watching currency moves with a high sense of urgency”, causing the yen to pare its losses versus the greenback, so that it last stood at 148.88 per US dollar.

James Malcolm, head of FX strategy at UBS, said of Japanese officials: “In terms of all of the tell-tale signs (of intervention) they’ve done everything they possibly could do.”

He added: “No one wants to believe it’s going to happen until it actually happens, which is absurd because (Japan is) the most consistent and the most practised over the decades at doing this.”

Elsewhere, the British pound slid to its lowest level since mid-March at US$1.2168 and was last down 0.19 per cent at US$1.219. It follows the BOE’s decision to hold rates at 5.25 per cent last week and a spate of bad economic data.

Tuesday marks a year since the pound crashed to a record low of US$1.0327 against the US dollar after then-Prime Minister Liz Truss’s disastrous budget.

The Swiss franc also fell to its lowest since March at 0.915 francs to the US dollar, having slid since the Swiss National Bank unexpectedly kept interest rates on hold last week. REUTERS