On Tuesday, the euro, pound, and yen found themselves at multi-month lows, with the Japanese yen teetering on the edge of weakening beyond the psychological threshold of 150 per dollar. This situation was driven by the relentless surge in U.S. Treasury yields, which firmly supported the U.S. dollar’s strength.
The euro (EURUSD) remained stable at $1.0476, close to its weakest point since December 2022. It had experienced a significant drop of nearly 1% on Monday due to robust U.S. manufacturing data and statements from Federal Reserve officials indicating a need for continued restrictive monetary policy.
The combination of these factors, along with an agreement to avert a partial U.S. government shutdown, pushed benchmark Treasury yields to a 16-year peak of 4.706% on Tuesday, further bolstering the dollar’s position.
Samy Chaar, chief economist at Lombard Odier, pointed out two key factors supporting the U.S. dollar: a favorable real rate differential and the U.S. economy’s strong performance. Real interest rates, which consider inflation, were declining faster in the United States compared to Europe.
Chaar also believed that technical factors might be contributing to the sell-off in U.S. Treasuries, potentially involving major investors capitulating, as the economic situation, in his opinion, did not justify a continued rise in yields.
The pound (GBPUSD) dropped to its lowest level since March and was down 0.26% at 1.20565. Market attention was also on the Japanese yen, which remained flat at 149.89 per dollar but remained near its weakest point in nearly a year, just shy of the 150 per dollar mark. Some observers speculated that this could prompt Japanese authorities to intervene to support the yen.
Japanese Finance Minister Shunichi Suzuki stated that authorities were closely monitoring the currency market and were prepared to respond, but any decision on currency market intervention would depend on market volatility rather than specific yen levels.
Wei Liang Chang, a foreign exchange and credit strategist at DBS, noted that while Japanese officials had claimed not to watch specific levels, interventions had occurred in the past around the 150 mark, indicating official concern when the yen weakened beyond that point.
The dollar index (DXY), tracking the dollar against six major currencies, rose 0.13% to 107.16, reaching its highest level since November.
In the United States, the focus this week was on labor market data, including Tuesday’s U.S. JOLTS job openings and Friday’s non-farm payrolls report. These releases had the potential to drive U.S. yields and the USD higher if they were surprised with strong results, according to Carol Kong, an economist and currency strategist at Commonwealth Bank of Australia.
Meanwhile, the Australian dollar (AUDUSD) slipped to an 11-month low of $0.6302, falling by as much as 0.95% following the Reserve Bank of Australia’s decision to maintain interest rates. In addition, Russia’s ruble weakened below the symbolic threshold of 100 to the dollar before recovering slightly in early trade.
The dollar also gained 0.5% against the Swiss franc, reaching a six-month high at 0.9215, after Swiss inflation figures came in slightly below expectations.