U.S. dollar rises as Treasury yields rise

The U.S. dollar rose for the second straight session on Monday, boosted by rising Treasury yields ahead of a number of Federal Reserve speakers this week, which could confirm expectations that asset purchases will begin to decline before the end of the year.

 

The yield on 10-year U.S. Treasuries hit a three-month high of $1.516% on Monday.

 

On Monday, Fed officials, including one influential board member, linked the reduction in the Fed's monthly bond purchases to continued job growth, with the September jobs report now a potential trigger for the central bank's bond "winding down."

 

Fed Chairman Jerome Powell, who joins Treasury Secretary Janet Yellen, will address Congress on Tuesday.

 

The dollar index, which measures the U.S. currency against six major peers, rose 0.1 percent to 93.37.

 

The dollar also continued to rise after data showed that new orders and shipments of major U.S. capital goods rose strongly in August, rising 0.5 percent in August on strong demand for computers and electronic goods.

 

But the market was more focused on the U.S. Treasury bond market.

 

U.S. yields rose to their highest levels since late June in anticipation of a tightening of monetary policy after the Fed announced last week that it could begin winding down stimulus as early as November and noted that an interest-rate hike could come sooner than expected. 

 

"The winding-down process itself is not a surprise, but an earlier end to the program will reinforce the perception that downside risks to the U.S. dollar have diminished," Mazen Issa, senior currency strategist at TD Securities, wrote in a research note.

 

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

 

"If the last cycle of winding down the program was any indication, about half of the cyclical rise in the U.S. dollar was seen three months after winding down the program," he added.

 

The euro was down 0.1 percent against the dollar to $1.1698, largely ignoring developments in Germany's weekend election, where the Social Democrats are projected to defeat the conservative CDU/CSU bloc.

 

The dollar rose 0.3 percent against the yen to 110.99 yen, after earlier rising to a nearly three-month high. It rose 0.2 percent against the Swiss franc to 0.9259 franc.

 

"The buck has no real reason to decline from where it is, so we'll be looking to see what can make a difference as we hear news this week from different sides: from the new German leadership, the new head of Japan and the U.S. Congress," said Juan Perez, a currency strategist and trader at Tempus Inc. in Washington.

 

The risk-sensitive Australian dollar rose 0.4 percent to US$0.7289 as worries about widespread market contagion from debt-laden China Evergrande Group eased.

 

Fears that Evergrande, China's second-largest real estate developer, could default on $305 billion in debt have marred trading in recent weeks, but some of those concerns are receding.

 

The People's Bank of China injected a net 100 billion yuan ($15.5 billion) into the financial system Monday, adding to last week's net 320 billion yuan, the most since January.