The US dollar stayed near its two-month high on Thursday, buoyed by stronger US economic data that reinforced expectations of further interest rate hikes by the Federal Reserve. The dollar index stood at 101.09, having touched 101.2 earlier in the session. This comes after the release of better-than-expected US manufacturing data, which revived concerns about persistent inflationary pressures.
The yen hovered near a three-week low against the dollar, while South Korean markets were closed for a public holiday. The dollar fell 0.2% to 157.94 yen, keeping it near its weakest level in three weeks. The recent US economic data has led to increased bets on further rate hikes by the Fed, with Federal Reserve Governor Michael Barr suggesting that the strong economy and inflation risks might necessitate additional rate increases.
The US bond market faced pressure after a weak auction of five-year Treasury bonds worth $70 billion, leading to a new wave of selling and pushing the yield on five-year bonds above 5% for the first time since 2007. This development has added to the upward pressure on interest rates. Meanwhile, oil prices remained firm, with Brent crude hovering near $103 per barrel after rising about 4% on Wednesday.
Japanese markets reopened after a holiday, with the yield on 10-year Japanese government bonds rising to around 3.06%, the highest in three decades. Despite this, the yen remained under pressure as investors assessed whether the Bank of Japan's recent rate hike and accompanying statements were sufficient to signal a strong commitment to monetary tightening.
In other Asian markets, the South Korean won weakened, with the dollar rising 0.5% to 1,372.1 won. The Australian and New Zealand dollars were little changed, trading at around $0.70 and $0.57, respectively. The dollar also gained slightly against the Singapore dollar to 1.2801.
Some regional currencies faced greater pressure, with the Indonesian rupiah being among the weakest performers. The dollar rose 0.6% to 17,903.5 rupiah. The Bank of Indonesia had kept its benchmark interest rate at 5.75% on Wednesday, as expected, and reiterated its commitment to using tools to stabilize the exchange rate and attract foreign inflows.
The Indian rupee edged up slightly, with the dollar falling 0.02% to 95.915 rupees. The Reserve Bank of India has been withdrawing excess liquidity from the banking system through bond sales and foreign exchange swaps, aiming to mitigate the risk of excess liquidity translating into additional inflationary pressures.
Key points
- The US dollar remains near a two-month high due to stronger US economic data and expectations of further Federal Reserve rate hikes.
- The yen is under pressure despite rising Japanese bond yields, as investors evaluate the Bank of Japan's recent policy moves.
- Regional currencies have seen mixed performance, with some facing pressure from a stronger US dollar and others benefiting from central bank actions.
