The U.S. dollar eased but remained close to five-month highs against a currency basket on today after a surge in U.S. government bond yields gave fresh impetus to a dollar rally that had lost momentum last week.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, dipped 0.11% to 93.05 by 07:45 GMT, within close reach of Wednesday’s five-month peaks of 93.35.
The dollar jumped higher on Tuesday after a U.S. retail sales report indicated that consumer spending is on track to rebound after a soft patch in the first quarter, boosting expectations for continued economic growth.
The dollar was also boosted by the surge in U.S. Treasury yields following the report, as traders continued to price in a faster pace of rate hikes by the Federal Reserve this year.
The yield on 10-year U.S. Treasury notes rose as high as 3.095%, the highest level since August 2011. Bond yields move inversely to prices. The yield subsequently came off that level and was last at 3.067%.
Yields have climbing higher since the Fed said on at its May meeting that inflation is moving closer to its 2% target. The Fed raised rates in March and projected two more rate hikes this year, although many investors see three hikes as possible.
The dollar slipped lower against the yen, with USDJPY losing 0.15% to trade at 110.17 after hitting 110.45 on Tuesday; the most since February 2.
The yen showed little reaction to news that Japan’s economy contracted by a larger than forecast 0.6% in the first quarter, amid declines in investment and consumption and weaker export growth.
The euro was a touch higher, with EURUSD edging up to 1.1845 by 08:03 GMT, having fallen to 1.1815 overnight, its weakest since December 22.
The pound was almost unchanged for the day, with GBPUSD last at 1.3506 after hitting a five-month low of 1.3450 on Tuesday.
The Australian dollar pushed higher, with AUDUSD rising 0.23% to 0.7492 after ending the previous day down 0.77%.
The New Zealand dollar also gained ground, with NZDUSD climbing 0.39% to 0.6889 after reaching a five-month low of 0.6849 overnight.