Dollar supported as US yields rise on Fed leadership speculation

Dollar prices held to gains against the yen and euro on Tuesday, supported by a rise in Treasury yields following a report that U.S. President Donald Trump was favoring a policy hawk as the next head of the Federal Reserve.

Treasury yields bounced from two-week lows and rose on Monday after a report that President Trump was favoring Stanford economist John Taylor, seen as more hawkish than current Chair Janet Yellen, to head the Fed.

“The dollar was under pressure as Treasury yields declined last week. But it was allowed to rebound as a stronger Wall Street, good U.S. data and the report about Taylor all came into place to stop the yield decline,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

The New York Fed’s business conditions index published on Monday showed its highest reading since September 2014.

“The euro likely holds the key to whether the dollar can remain firm. The European Central Bank is now considered less hawkish than the market had initially thought last month, pushing German bund yields lower and in turn favoring the dollar against the euro,” Ishikawa at IG Securities said.

Ten-year bond yields in Germany hit one-month lows overnight, extending moves seen late last week on reports that ECB policymakers broadly agree on extending asset purchases at a lower volume at their Oct. 26 meeting with views converging on a nine-month extension.