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The US dollar has surged to a new 10-month high, driven by a remarkable spike in US bond yields, reaching levels not seen since October 2007. Meanwhile, the Japanese yen continues its downward slide, raising concerns among traders about potential government intervention.
Federal Reserve’s Neel Kashkari Advocates for Higher Interest Rates
Federal Reserve policymaker Neel Kashkari made a significant statement on Monday, suggesting that, given the robustness of the US economy, interest rates should rise further and remain “higher for longer” until inflation retreats to 2%.
Kashkari’s remarks played a pivotal role in boosting the yield on the 10-year US Treasury bond, a benchmark for global borrowing costs, to 4.566% on Tuesday. It’s essential to note that bond yields move inversely to bond prices.
Higher US Yields Bolster the Dollar
The increase in US yields has intensified the allure of the US dollar, propelling the dollar index to 106.2, its highest point since late November 2022. The dollar index, tracking the currency against six significant peers, showed a 0.11% gain, settling at 106.07.
Euro Remains Flat as the Dollar Dominates
The euro has remained relatively stagnant against the resurgent dollar, trading at $1.0588, following a recent dip to its lowest level since March at $1.057.
Joe Tuckey, head of FX analysis at Argentex, stated, “The dollar is just a steamroller, it’s absolutely extraordinary. It’s just exceptionalism in the US, it’s very hard to argue with. We’re just seeing that consistently strong data there.”
Japanese Yen Approaches Critical Level
The rally in the dollar has put further pressure on the Japanese yen, pushing it below the 149 per dollar threshold for the first time since October 2022, hitting 149.19. The dollar managed a 0.12% gain against the yen, reaching 149.06.
Government Intervention Concerns Loom for the Yen
Analysts and traders are closely watching the yen’s descent towards the 150 level, which the finance ministry considers a potential red line. The ministry has recently issued warnings of possible intervention. The Tuesday meeting of political leaders and Bank of Japan officials is closely monitored.
Finance Minister Shunichi Suzuki emphasized that authorities will consider all options regarding currencies if excessive volatility persists, while Bank of Japan Governor Kazuo Ueda pledged close coordination with the government on foreign exchange matters.
Read More: Japan’s Finance Minister Expresses Concern Over Rapid Forex Movements
Adam Cole, RBC Capital Markets’ chief currency strategist, noted, “Intervention risk is still elevated, with our model putting the probability at around 20%.”
Pound and Swiss Franc Face Challenges
Elsewhere, the British pound saw a decline to its lowest level since mid-March at $1.2168 and was last down 0.34% at $1.2171. This follows the Bank of England’s decision to maintain rates at 5.25% last week, coupled with poor economic data.
The Swiss franc also experienced a drop, reaching its lowest point since March at 0.915 francs to the dollar. This decline followed the Swiss National Bank’s unexpected decision to keep interest rates unchanged last week.
Disclaimer: Please note that this article serves solely for informational purposes and should not be construed as financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
