The dollar has slightly strengthened against a basket of currencies, drawing support from increased yields on U.S. government bonds amid expectations that the U.S. central bank may begin to taper economic stimulus as early as next month.
The dollar index against a basket of key currencies rose by 0.1 percent to 81.25 points, supported mainly by a slight increase in the exchange rate of the greenback against the euro. The single European currency traded at 1.3340 dollars.
The dollar’s exchange rate against the yen remained unchanged compared to yesterday’s market close at 97.40 yen.
Yields on U.S. 10-year government bonds approached their highest level in two years amid expectations that the U.S. central bank may begin to reduce economic stimulus as early as next month.
– As yields on 10-year U.S. bonds approach the three percent level, we believe that the general direction indicates a strengthening of the dollar – stated Tom Levinson from ING.
Macro-economic indicators from the U.S. are in focus, as the Fed has conditioned the tapering of stimulus on stable economic growth. Today, data on the start of new home construction in July and the confidence index compiled by the University of Michigan will be released.
The Eurozone, according to recently released data from the European statistical office, emerged from recession in the second quarter, but the European Central Bank is unlikely to change its mild monetary policy anytime soon.
The Bank of Japan launched an extensive quantitative easing program in April, and in the coming months, additional fiscal and structural reforms are likely to follow.
Therefore, Japanese investors in search of higher yields are turning abroad. Current data shows that they have recently predominantly purchased foreign debt, a significant portion of which likely pertains to U.S. government bonds.
