(Corrects 0.5% drop days in points four and 11 for Wednesday, from Tuesday)
Harry Robertson and Kevin Buckland
LONDON/TOKYO (Reuters) – The dollar held steady on Thursday after rising to a two-week high as a rout in U.S. Treasuries pushed yields higher, boosting the currency’s appeal.
An index tracking the US currency against its major peers rose to 105.18 overnight, its highest level since May 14, and was slightly lower at 105.05 in early European trade.
A two-day jump of 15 basis points above 4.6% in long-term Treasury yields helped push the dollar higher. The rise in yields, which move inversely to prices, was driven by a flurry of stronger-than-expected data, harsh words from Federal Reserve officials and a series of failed bond auctions.
The euro was hurt by rising US bond yields, falling 0.5% on Wednesday to hit a two-week low of $1.0789 overnight before rebounding slightly to $1.0806.
“If you look at the volatility of the euro-dollar, it is exceptionally low,” said Chris Turner, head of global markets at ING. “It will take some kind of powerful new stimulus to push the euro-dollar beyond recent ranges. So by recent standards, yesterday’s 0.5% move was quite large.”
“People will be watching the bond market today to see if there is a further sell-off,” Turner added, saying strong demand at a Japanese government bond auction could help stabilize global debt on Thursday.
The yen was the top mover on Thursday morning in Europe, with the dollar falling 0.4% against the Japanese currency to 157.08 after hitting a one-month high of 157.72 the previous day.
Charu Chanana, head of foreign exchange strategy at Saxo Bank, said traders may be nervous about approaching the 158 level as the threat of intervention from Japanese authorities looms in the background.
Market participants suspect Japan intervened to support its currency in late April and early May; data coming out tomorrow will likely confirm this.
“The Japanese authorities intervened around this level on May 1, and the market is now looking at 158 as a critical point for potential intervention,” Chanana said.
Sterling, which hit a more than one-month high earlier this week, also fell 0.5% on Wednesday and was last trading at $1.2704, little changed on the day.
Expectations for the Federal Reserve to cut interest rates this year have eased amid signs of persistent inflation, most recently with a surprise rise in consumer sentiment in Tuesday’s data.
Traders now see a 56.6% chance of a quarter-point decline by the end of the September meeting, up from a 57.5% chance a week ago, according to data from CME Group’s FedWatch Tool (NASDAQ:).
Revised US GDP data will be released later in the day, followed by the week’s main macro event, the Personal Consumer Expenditures Price Index, the Fed’s preferred measure of inflation, on Friday.
Eurozone price data will also be released on Friday, following stronger-than-expected April inflation data from Germany on Wednesday.
(This story has been corrected to change the day of the 0.5% decline from Tuesday to Wednesday in paragraphs four and 11)