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Dollar near three-and-a-half-month peak, bolstered by rising U.S. bond yields (Thursday, April 26, 2018)

The dollar traded near a 3-1/2-month high against a basket of currencies on Thursday, bolstered by higher U.S. Treasury yields, led by the 10-year benchmark breaching the 3% threshold this week for the first time in four years.

The 10-year U.S. Treasury yield set a fresh four-year high of 3.035% on Wednesday, driven by worries about the growing supply of government debt and inflationary pressures from rising oil prices.

A rise to levels beyond 3.041% would take the U.S. benchmark 10-year yield to its highest since July 2011.

The recent jump in U.S. bond yields has caused U.S.-Japan and U.S.-German yield differentials to widen further in the dollar’s favour, leaving the Yen and the euro lower.

The dollar’s index against a basket of six major currencies was at 91.136, having risen to a high of 91.261 on Wednesday; it’s strongest since Jan. 12.

Wall Street limped into positive territory on Wednesday on optimism over a spate of upbeat earnings, although that was nearly offset by jitters over rising U.S. bond yields and corporate costs.

The euro rose 0.2% to $1.2179 but was still within sight of a near two-month low of $1.2160 set on Wednesday.

The near-term focus is on the European Central Bank’s rates review due later on Thursday.

The ECB is set to keep policy unchanged on Thursday, playing down worries over recent softness in the euro zone economy and leaving the door open to ending its lavish bond purchase scheme by the close of the year.

YEN’S APRIL WOES

Against the Yen, the dollar set a 2-1/2-month high of 109.49 Yen but later eased to 109.30 Yen, down 0.1%.

So far in April, the dollar has gained 2.8% against the Yen, putting it on track for its biggest monthly gain since November 2016.

The Japanese currency likely holds attraction for overseas investors looking to diversify their currency allocations, given that the Yen’s real effective exchange rate it’s trade-weighted and inflation adjusted exchange rate still appears relatively cheap on a longer-term basis.