TOKYO (Reuters) – The greenback rose throughout the board on Wednesday, climbing to a six-month excessive towards the yen, after Federal Reserve Chairman Jerome Powell gave an upbeat outlook for the U.S. financial system and bolstered views that the Fed was on monitor to steadily hike rates of interest.
A cash changer counts U.S. greenback banknotes at cash change market in Herat province, Afghanistan June three, 2018. REUTERS/Jalil Ahmad
In intently watched congressional testimony on Tuesday, Powell mentioned he noticed the United States on track for years extra of regular progress, whereas largely discounting the dangers related to a commerce battle.
The greenback was up zero.05 p.c at 112.955 yen JPY= after going as excessive as 113.08, its strongest since January 9.
The euro dipped zero.05 p.c to $1.1653 EUR= after dropping zero.four p.c in a single day.
An easing of threat aversion was mirrored on Wall Street, which rose in a single day and supported Asian shares on Wednesday after Powell’s optimistic evaluation of the U.S. financial system.
“The dollar stands to gain further, particularly against the yen, with risk aversion in the equity markets petering out,” mentioned Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
“And while long-term Treasury yields are not rising prominently, this is a reflection of investor demand for U.S. assets that generates a degree of dollar-buying.”
The 10-year Treasury yield US10YT=RR firmed this week however it has been on a gradual decline from a seven-year excessive above three p.c set in May.
The two-year Treasury yield US2YT=RR, most delicate to the market’s views on modifications in Fed coverage, has risen to a decade-high.
As a outcome the U.S. yield curve was the flattest in 11 years and near inverting, a phenomenon by which the two-year yield turns into increased than the longer-dated Treasury yield.
An inverted yield curve is typically seen as an indication of waning confidence in the direction of the financial system and a sign for a recession.
“The correlation between the yield curve and the dollar has been relatively unstable. Taking this into account, currencies are unlikely to show a strong reaction if the curve does invert,” mentioned Tohru Sasaki, head of market analysis at JPMorgan Chase Bank.
The pound was little modified at $1.3110 GBP=D3 after slipping 1 p.c the day gone by.
On high of the greenback’s broad energy, sterling has come additionally underneath strain from disquiet over British politics.
The forex fell to a three-week low of $1.3068 in a single day as traders anticipated extra Brexit challenges after Theresa May’s authorities solely narrowly received a parliamentary vote on post-Brexit commerce with the European Union.
The greenback index towards a basket of six main currencies .DXY edged up zero.1 p.c to 95.038 after rising roughly zero.5 p.c the day gone by.
The Australian greenback was a shade decrease at $zero.7384 AUD=D3, extending the retreat from Tuesday when it misplaced zero.45 p.c towards a broadly stronger dollar.
Reporting by Shinichi Saoshiro; Editing by Eric Meijer & Shri Navaratnam