US dollar soars to 10-month high, euro and sterling hit lows

On Wednesday, the US dollar rose to its highest level in 10 months against major currencies, causing the euro and sterling to hit their lowest points in six months. This was driven by expectations of sustained higher US interest rates.

Despite a recent heavy sell-off of US Treasuries, they stabilized, with yields still close to their highest levels in 16 years, which kept the dollar strong.

The euro decreased by 0.1% to $1.0567, reaching a six-month low of $1.0555 earlier in the day. It’s poised to incur a loss of over 3% for the quarter, marking its weakest performance in a year.

Similarly, sterling also declined by 0.1% to $1.2149 after touching a six-month low of $1.2135 earlier on Wednesday. It’s on track for a quarterly loss of over 4%.

The US dollar index peaked at 106.32, its highest point in 10 months.

Recently, Federal Reserve officials hinted at the possibility of further interest rate hikes, resulting in multi-year highs in US Treasury yields. The benchmark 10-year yield stood at 4.503%, after reaching a 16-year high of 4.566% in the previous session. The two-year yield was at 5.047%.

The yen faced significant challenges due to elevated US yields, remaining at 149.06 per dollar, near an 11-month low of 149.185 reached on Tuesday. The dollar/yen pair is highly responsive to shifts in long-term US Treasury yields.

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The yen’s gradual decline towards the psychological threshold of 150 per dollar has raised concerns among traders about potential intervention from Japanese authorities, akin to what occurred last year.

Minutes from the Bank of Japan’s July meeting revealed that policymakers agreed on the importance of maintaining extremely loose monetary policies but were divided on how soon the central bank could discontinue negative interest rates.

Elsewhere, the Australian dollar fell by 0.30% to $0.6380, showing little reaction to Wednesday’s data indicating a slight increase in Australia’s inflation last month, which was in line with expectations.

In contrast, the Swedish krona bucked the recent trend by strengthening against both the dollar and euro. This was attributed to the central bank’s announcement the previous week that it would hedge a portion of its forex reserves to mitigate risk.

The dollar was last traded at 11.014 krona, having slipped over 1% so far this week, and is on track for its most significant weekly decline against Sweden’s currency since mid-July.