TOKYO- The dollar stood firm against its low-yielding peers on Tuesday on bets of a faster economic recovery in the United States and expectations that the US Federal Reserve will show greater tolerance of higher bond yields than other central banks.
Risk sensitive currencies stepped back from sharp gains the previous day, as China’s top financial regulator discussed the need to proactively take measures to stabilize the housing market, while expressing wariness of the risk of bubbles bursting in foreign markets.
The dollar index rose 0.2 percent to 91.176, hitting a three-week high to edge closer to its February peak of 91.600.
The US currency rose to as high as 106.93 yen, its highest since late August, and last stood at 106.78 yen while the euro dipped 0.2 percent to $1.2026, touching its lowest level in almost a month.
“The jury is still out on whether the bond market sell-off is over. But people expect the Bank of Japan to keep a tab on bond yields, which means there will be a bigger yield premium for the dollar,” said Kazushige Kaida, head of FX sales at State Street Bank’s Tokyo Branch.
The euro was under pressure as top officials from the European Central Bank sounded alarm over rises in bond yields.
President Christine Lagarde said the ECB will prevent a premature increase in borrowing costs for firms and households.
Policymaker Francois Villeroy de Galhau was even more explicit, saying some of the recent rises in bond yields were unwarranted and that the ECB must push back using the flexibility embedded in its bond purchase program. – Reuters