Dollar climbs with Treasury yields on higher rate expectations

By Rae Wee

SINGAPORE (Reuters) – The dollar rode U.S. Treasury yields higher on Friday and was eyeing a third straight week of gains, as a bout of resilient economic data out of the United States raised market expectations that more interest rate hikes were in the offing.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, while other data revealed that monthly producer prices increased by the most in seven months in January.

The latest data releases gave the U.S. dollar a leg up, knocking sterling to a fresh six-week low of $1.1957 on Friday, while the euro fell 0.15% to $1.0657.

The Australian and New Zealand dollars were likewise pinned near their six-week troughs hit in the previous session.

The Aussie was last 0.29% lower at $0.68595, having fallen as low as $0.68405 on Thursday. The kiwi slipped 0.27% to $0.62385, after hitting its lowest level since Jan. 6 in the previous session.

“The U.S. economy, from recent data, shows that it‘s still healthy. It doesn’t seem to be going into a recession any time soon,” said Tina Teng, market analyst at CMC Markets.

“The markets are pricing for higher-for-longer rates.”

Thursdays reports followed data from earlier this week, which showed robust growth in U.S. retail sales in January and signs of sticky inflation, stoking fears that the Federal Reserve would have to raise rates higher than previously expected.

U.S. Treasury yields have also surged on the back of further hawkish rate repricing, with the two-year yields last at 4.6549%.

The benchmark 10-year U.S. Treasury yield peaked at 3.878% on Friday, its highest since Dec. 30.

Fed officials have also signalled that the U.S. central bank has further to go in raising rates, with two policymakers saying on Thursday that the Fed likely should have lifted interest rates more than it did early this month.

Markets are now expecting rates to peak above 5.25% by July.

Against a basket of currencies, the U.S. dollar index was last 0.09% higher at 104.20, having risen to a more than one-month high of 104.24 in the previous session, and was on track for a third straight weekly gain.

Elsewhere, the dollar was last 0.25% higher against the Japanese yen at 134.29.

The greenback was eyeing a weekly gain of more than 2% against the yen, its best week since last October.

Japans government picked academic Kazuo Ueda as its new central bank chief on expectations he can help keep inflation on target and sustain economic growth and wage hikes, finance minister Shunichi Suzuki said on Friday.

“It is expected that the most important task of nominee Governor Ueda will be to guide the BOJ to an exit of its ultra-accommodative (quantitative and qualitative easing) policies,” said Jane Foley, head of FX strategy at Rabobank.

“That, however, does not suggest that the BOJ will be in any rush to change direction.”

(Reporting by Rae Wee; Editing by Sonali Paul)