FOREX-Yen weakens to 111 per dollar as US Treasury yields skyrocket


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By Kevin Buckland

TOKYO, Sept.28 (Reuters) – The yen traded near an almost three-month low against the dollar and hit a two-week low against the euro on Tuesday, as rising yields bonds in the United States and Europe attracted Japanese investors.

The yen was little changed at 110.985 per dollar, not far from Monday’s low of 111.07, a level not seen since July 5.

It was also broadly stable at 129.785 for the single currency after hitting 129.92 for the first time since September 14.

While benchmark 10-year Japanese government bond yields remain close to zero through the Bank of Japan’s yield curve control policy, equivalent US Treasury yields have peaked at three months, reaching 1.516% overnight.

German 10-year Bund yields, although lower than JGBs, hit their highest level since early July at minus 0.191%, down from minus 0.340% just a week ago.

“The main impact of the higher Treasury yields on currencies has been to see the USD / JPY move higher, now reaching 111,” Ray Attrill, head of foreign exchange strategy at the National Australia Bank, wrote at Sydney, in a note to clients.

“111 will be a tough (nut) to crack, keeping in mind that the pair has spent just two days with time above that level so far this year – and with a Treasury yield at 10 years having reached 1.77%. “

US yields have been pulled higher by a hawkish move by the Federal Reserve, which announced last week that it could start phasing out stimulus measures as early as November and that interest rate hikes could follow further. sooner than expected.

This was reinforced by hawkish tones from the Bank of England and the Norges Bank, which last week became the first central bank in developed countries to raise interest rates, pushing other global bond yields higher. .

But despite an initial increase in the dollar index – which measures the currency against six major rivals – to 93.526 for the first time in more than a month, it has since moved mainly sideways and was not not far from Monday at 93.421.

Against the euro, the dollar was little changed at $ 1.16935, hovering near the more than one month high of $ 1.16835 reached on Thursday.

Still, many analysts expect the dollar to rise over time.

“While the reduction in and of itself is not a surprise, an early termination of its program will further reduce the downside risks of the US dollar,” Mazen Issa, senior currency strategist at TD Securities, wrote in a research note. .

“If the last round of cuts were any indication, about half of the cyclical rise in the US dollar was seen three months after the cut,” he added.

TD expects the Fed to end its quantitative easing program by June 2022.

Elsewhere, the risk-sensitive Australian dollar slipped 0.14% to $ 0.7276, but held on for most of Monday’s 0.4% rally as concerns about contagion from problems in the China Evergrande group debt fell and iron ore prices continued to rebound.

The New Zealand dollar weakened 0.17% to $ 0.70005, after ending largely flat on Monday.

(Reporting by Kevin Buckland; editing by Richard Pullin)

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