(Updated at 1000 EDT, changes dateline, previously LONDON)
The dollar hit a 10-month high on Wednesday, pushing the euro to an almost nine-month low and keeping the yen in intervention territory, as investors bet that the United States economy will fair better with higher interest rates than competitors.
U.S. Treasuries stabilized after their recent heavy selloff, though yields remained near 16-year peaks, keeping the greenback solidly bid.
US/ Still strong U.S. economic data has defied investor expectations for a slowdown and the Federal Reserve last week warned that it could raise interest rates again and is likely to hold rates higher for longer.
“The U.S. is most able to cope with these new challenges - higher interest rates and higher energy prices,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “Even if the news stream from the U.S. is not that great, it still looks relatively better.”
The U.S. dollar index =USD , which measures the greenback against a basket of other major currencies, reached 106.61, the highest since Nov. 30.
The euro EUR=EBS dropped to $1.05125, the lowest level since Jan. 6. Sterling GBP=D3 reached $1.21310, the lowest since March 17.
"It's clear now that markets see higher long-term yields in the U.S. for a longer period. That's the main driver for the dollar here," said Dane Cekov, senior FX strategist at Nordea.
Federal Reserve Bank of Minneapolis President Neel Kashkari said Wednesday it is not clear yet whether the central bank is finished raising rates amid ample evidence of ongoing economic strength.
YEN ON INTERVENTION WATCH Elevated U.S. yields have spelt trouble for the yen JPY=EBS , which slipped to an 11-month low of 149.4 per dollar.
The dollar/yen pair tends to be extremely sensitive to changes in long-term U.S. Treasury yields, particularly at the 10-year maturity.
The yen's decline closer to the psychological level of 150 per dollar has put traders on high alert for any signs of intervention from Japanese authorities, as officials ramp up their rhetoric against the sliding currency.
"The fundamental upside pressure (to dollar/yen) from bond yields is simply too great to ignore," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. However, "even if there were intervention, it won't drive dollar/yen down permanently unless bond yields start to retreat in earnest too."
Minutes of the Bank of Japan's July meeting released on Wednesday showed that policymakers agreed on the need to maintain ultra-loose monetary settings but were divided on how soon the central bank could end negative interest rates.
======================================================== Currency bid prices at 10:00AM (1400 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 106.5100 106.2100 +0.30% 2.918% +106.6100 +106.1600 Euro/Dollar EUR=EBS $1.0522 $1.0573 -0.47% -1.80% +$1.0575 +$1.0513 Dollar/Yen JPY=EBS 149.3550 149.0600 +0.20% +13.92% +149.3950 +148.8600 Euro/Yen EURJPY= 157.16 157.58 -0.27% +12.02% +157.6100 +157.0400 Dollar/Swiss CHF=EBS 0.9182 0.9159 +0.28% -0.67% +0.9193 +0.9155 Sterling/Dollar GBP=D3 $1.2143 $1.2158 -0.12% +0.41% +$1.2164 +$1.2131 Dollar/Canadian CAD=D3 1.3509 1.3515 -0.04% -0.29% +1.3538 +1.3504 Aussie/Dollar AUD=D3 $0.6380 $0.6398 -0.27% -6.40% +$0.6409 +$0.6362 Euro/Swiss EURCHF= 0.9660 0.9680 -0.21% -2.36% +0.9693 +0.9660 Euro/Sterling EURGBP= 0.8663 0.8696 -0.38% -2.05% +0.8702 +0.8663 NZ NZD=D3 $0.5931 $0.5945 -0.26% -6.62% +$0.5957 +$0.5921 Dollar/DollarDollar/Norway NOK=D3 10.7730 10.8210 -0.41% +9.81% +10.8320 +10.7570 Euro/Norway EURNOK= 11.3373 11.4321 -0.83% +7.98% +11.4500 +11.3312 Dollar/Sweden SEK= 11.0297 10.9930 -0.13% +5.98% +11.0497 +10.9431 Euro/Sweden EURSEK= 11.6018 11.6173 -0.13% +4.06% +11.6575 +11.5613
