By Amanda Cooper and Stefano Ribaudo
(Reuters) – Rising U.S. yields supported the dollar on Tuesday, while low-yielding currencies such as the Japanese yen felt pressure as investors awaited a speech by Federal Reserve Chairman Jerome Powell later in the session.
Benchmark 10-year U.S. Treasury yields rose about 14 basis points to 4.479% overnight, with analysts linking the rise to expectations that Donald Trump would win the U.S. presidency, which would lead to higher tariffs and government borrowing.
The yield on the 10-year note fell 2 basis points on the day to 4.4593% on Tuesday.
“Trump’s better performance (in the debate) over (President Joe) Biden has raised expectations that inflation may accelerate, yield curves will steepen and the dollar may continue to trade higher,” said Christopher Wong, OCBC Bank strategist.
The dollar, which measures the greenback against six other currencies, rose 0.15% to 106.00, with attention focused on economic data and comments from Federal Reserve Chairman Jerome Powell later in the session.
“There was a tendency on Powell’s part to be a bit more bullish than the FOMC consensus on slowing inflation, and we think there are some downside risks to the dollar ahead of today’s speech,” said Francisco Bisol, FX strategist at ING.
Analysts said they are also looking at U.S. job openings figures for May, which have good potential to move the market.
As the dollar rose, the euro gave back some of its gains after the first round of the French election came in largely in line with opinion polls. The single currency fell 0.2 percent to $1.0715.
As markets await the second round of the French elections over the weekend, their focus has turned to economic data and the European Central Bank’s monetary outlook.
Eurozone inflation eased last month but a key services component remained stubbornly high, raising concerns that domestic price pressures could remain elevated.
European Central Bank President Christine Lagarde said on Monday that the central bank needs more time to conclude that inflation is firmly on track towards 2% and that benign economic developments suggest that cutting interest rates is not urgent.
The yen hit 161.745 against the dollar on Tuesday, its weakest level in about 38 years, driven mainly by the wide interest rate gap between the United States and Japan.
Japan’s finance minister said on Tuesday that authorities are vigilant for sharp moves in the currency market, but he stopped short of issuing a clear warning about intervention.
Against the euro, the yen touched an all-time low of 173.67 on Monday and was just below that level on Tuesday, while the yen approached a 33-year low against the Australian dollar as the carry trade remained attractive.
“There is no catalyst per se for yen weakness today, and there is really nothing stopping it,” said Matt Simpson, chief market analyst at City Index.
Strong manufacturing data from China and the central bank’s announcement that it intends to borrow bonds – and likely sell them – as well as steadily falling yields gave the yuan only a brief boost on Monday, traders said.
It last traded at 7.307 in overseas trading on Tuesday, its lowest level since June.
The pound sterling hovered near its lowest level in almost two months against the strong dollar on Tuesday, while the euro continued its modest rise over the past week.
The Australian dollar fell 0.14 percent to $0.66515 as traders focused on the central bank’s minutes, which showed much debate over whether policy was tight enough to ensure inflation slowed as desired.
Swap market prices indicate a one-in-three chance of a rate hike next month.
