Dollar hits two-decade high as Treasury yields rise

Por Saikat Chatterjee

LONDON (Reuters) – The dollar hit a two-decade high on Monday as rising U.S. Treasury yields prompted hedge funds to raise their bullish bets, while the Chinese yuan weakened below of 6.77 units per dollar after meager trade data.

* The latest leg of the dollar’s rally, which began after the Federal Reserve hiked interest rates by 50 basis points last week, has hit currencies that had previously been immune to the greenback’s rise, such as the Australian dollar , the yuan and even cryptocurrencies.

* Against a basket of currency pairs, the dollar index broke above the 104.19 level on Monday for the first time since July 2002, extending its rally to almost 9% this year.

* Although it trimmed its gains to 103.87 in mid-London trading after news of intervention by some emerging market central banks in support of their currencies, the dollar’s uptrend appears intact, according to traders.

* “It’s been a one way road all morning, with Treasury yields approaching the 3.2% level and the dollar benefiting from it,” said a trader at a European bank in London.

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* Treasury yields extended their rise for the third straight session, with benchmark 10-year yields topping 3%, hitting 3-1/2-year highs.

* Although the market estimates that the current tightening cycle in the United States will take interest rates to around 3.5% in mid-2023, the speed of the Fed’s rate hike is much faster than that of its peers at the Bank of England and the European Central Bank.

* Money markets expect the US to raise interest rates by a further 200 basis points in the remainder of the year, taking benchmark rates to almost 3%, while the ECB’s planned hikes of 92 basis points will only take your benchmark deposit rate to positive territory.

* The Chinese yuan extended losses to close at a nearly 19-month low as weak April trade data reaffirmed market concerns about the country’s COVID-19 lockdowns and their impact on the economy.

(Reporting by Saikat Chatterjee; Editing in Spanish by Ricardo Figueroa)

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