Dollar rallies, yen falls to record lows

The US dollar strengthened on Tuesday, buoyed by rising US Treasury yields, while low-yielding currencies like the Japanese yen and Chinese yuan faced renewed pressure.

Benchmark 10-year Treasury yields surged to 4.479 per cent overnight on expectations of a Trump victory in the US election. Yields settled at 4.443 per cent in Tuesday’s Asian trading session.

The euro surrendered some of its earlier gains after the first round of France’s election results came in largely as anticipated. The single currency fell 0.11 per cent to $1.07287.

The Japanese yen plummeted to 161.745 per dollar on Tuesday, its weakest level in nearly 38 years. This extended a downward trend primarily driven by the significant interest rate gap between the U.S. and Japan.

Japan’s finance minister expressed vigilance regarding sharp movements in the currency market but refrained from issuing a clear warning about potential intervention.

The yen also weakened against other major currencies. It touched a lifetime low of 173.67 against the euro on Monday and remained near that level on Tuesday. While, the yen neared a 33-year low against the Australian dollar as carry trade opportunities remained attractive.

Market participants now await Friday’s US non-farm payrolls report. Hopes are that it will show signs of a significant slowdown in the labour market, potentially easing pressure on the battered yen.

The Chinese yuan recently reached a seven-month low against the dollar, influenced by the substantial gap in US and Chinese government bond yields. The US 10-year yield is more than 220 basis points higher than China’s.

The offshore yuan traded at 7.3043 on Tuesday, hovering near its June low. The onshore yuan depreciated slightly by 0.04 per cent to 7.2712 per dollar.

Other currency movements:

  • The dollar index stood at 105.93, with investors awaiting US jobs data and comments from Fed Chair Powell.
  • The New Zealand dollar dropped to $0.6053, testing its 200-day moving average.
  • Sterling and the Australian dollar also saw slight declines by 0.14 per cent and 0.3 per cent, respectively.

Attribution: Reuters

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