The U.S. dollar rose for a second day in a row in early Tuesday trade, putting a key measure of the buck’s strength on pace to mark its highest level in about six months, as rising rates on U.S. Treasury bonds, underpinned appetite for the currency.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.59% climbed 0.8% to 93.219, rising for a second straight day and hitting a four-day high. If today’s gains hold it would represent the sharpest daily move since Oct. 26, according to WSJ Market Data Group..
A broader measure of the greenback, the WSJ Dollar Index BUXX, +0.58% rose 0.6% to 86.88.
The euro EURUSD, -0.5533% slipped below $1.19 and traded at $1.1848, down versus $1.1929 late Monday in New York.
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The British pound GBPUSD, -0.4426% fell to $1.3487 compared with $1.3556 on Monday.
The greenback also advanced against the yen USDJPY, +0.60% , buying ¥110.21 compared with ¥109.65 on Monday, marking its best level since January, according to FactSet.
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In emerging markets, the buck gained across the board. The buck hit a new historic high against the Turkish lira USDTRY, +2.0937% , last buying 4.4433 lira, up 1.8% from late Monday.
China’s yuan slipped as well, with one U.S. dollar buying 6.3687 onshore yuan USDCNY, +0.6042% , up 0.5%, and 6.3603 offshore yuan USDCNH, +0.4245% , up 0.4%.
What is driving the market?
The U.S. dollar headed higher on Tuesday, as yields on U.S. government debt was also on the rise. Yields and the buck tend to move in tandem. The same dynamic spurred the greenback’s rapid rise in April, when the 10-year bond hit a yield of 3% for the first time in four years. The 10-year TMUBMUSD10Y, +1.87% last yielded 3.046%, up 6 basis points.
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Trade talks between the U.S. and China continued, also supporting the buck as investors previously feared a trade fallout with the People’s Republic. While analysts said there is still a long way to go, the suggestion that China is open to easing tariffs on some agricultural products in exchange for the U.S. offering a lifeline struggling Chinese telecom giant ZTE were seen as providing a glimmer of hope.
Meanwhile in the U.K., data showed the unemployment rate remained at a 42-year low of 4.2% in March, while wages without bonuses advanced 2.9%, up from 2.8% in February. However, earnings including bonuses slipped to 2.6% from 2.8%. The overall rather supportive numbers leave the possibility of a summer interest rate hike from the Bank of England open.
What are strategists saying?
“This reduced risk of a U.S./China trade war has helped to boost U.S. Treasury yields, with the U.S. 10 year yield back above 3.0% once more. With yield differentials a driver of forex, this is helping to pull dollar-yen higher as market sentiment improves,” said Richard Perry, market analyst at Hantec Markets, in a note.
“The fact that there is a willingness to meet in the middle ground on certain issues, helps to reduce the prospect of debilitating tit-for-tat sanctions between the [U.S. and China] that everyone loses from,” he added.
What else is in focus?
April retail sales climbed 0.3% in April, in line with economists’ expectations. Stripping out car sales, they also rose 0.3%.
The Empire State Manufacturing Survey showed an increase to 20.1 in May, compared with 15.8 in the previous month.
At 10 a.m. Eastern, traders are slated to get a May figure for a housing-market index, as well as March data on business inventories.
On the Federal Reserve front, Dallas Fed President Robert Kaplan said that while inflation was rising, it wasn’t peaking too quickly. Inflation is a key ingredient for the Fed’s monetary policy decision making.
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San Francisco Fed President John Williams is slated to give a speech to the Economic Club of Minnesota at 1:10 p.m. Eastern. Also Tuesday, a Senate panel is scheduled to hold a hearing on the nomination of Richard Clarida to become the Fed’s vice chairman and Michelle Bowman to become a member of the central bank’s board of governors.
In other assets, U.S. stock futures pointed to a lower open.