The dollar hovered near a seven-month high early on Thursday on reinforced prospects for a near-term US interest rate hike, while the euro struggled near 2-1/2-month lows versus the greenback. Sterling was steady, with the dollar’s broad strength cutting short the pound’s rebound on a slight easing of concerns over a potential “hard Brexit”. The dollar index was little changed at 98.005, not far from 98.043 touched overnight, its highest since March 10.
The greenback rose 0.2 per cent to 104.435 after rising to 104.490 the previous day, its highest since late July. The dollar was boosted on Wednesday by the minutes of the Federal Reserve’s September policy meeting showing several voting members of the policy committee judged a rate hike would be warranted “relatively soon” if the US economy continued to strengthen. US bond yields rose, with the benchmark 10-year Treasury yield reaching a four-month high, to help lift the dollar.
“Whether the latest bull phase by the dollar is real or not depends on how the various US asset markets can co-exist with the prospects of a Fed hike,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. “While it is plain to see that higher Treasury yields are pushing up the dollar, equities are also up. Dollar/yen has climbed above 104 amid lessened demand for the yen as the stock markets are holding up.”
Analysts said the rise in Treasury yields also increased the dollar’s attraction relative to the euro, with the spread between US and German two-year bond yields at its widest in a decade. The euro inched up 0.1 per cent to $1.1013 but remained in close reach of $1.1004 seen the previous day and its lowest since late July.
Sterling was little changed at $1.2192 after rising about 0.7 per cent overnight to pull away from a 31-year low below $1.1500 struck last Friday. The pound had surged by as much as 1.5 per cent after British Prime Minister Theresa May said she would give lawmakers some scrutiny of the Brexit process and would seek “maximum possible access” to Europe’s single market. Woes for sterling appeared far from over, however, as May sounded less concessionary when speaking in parliament.