U.S. dollar steadied close to a two-month peak as rising Treasury yields and volatile oil prices provided support while markets awaited U.S. inflation and jobs data that could shape Federal Reserve policy.
Dollar held near a two-month peak as U.S. Treasury yields pushed higher, with the 10-year at levels not seen since 2007 and the 30-year at 2004 highs.
Markets looked to upcoming U.S. data — the PCE price index and nonfarm payrolls — for clues on whether the Fed will raise rates in October.
Oil price moves and a global bond sell-off supported the dollar but gains were capped as investors awaited fresh economic signals.
# What happened The U.S. dollar hovered near a two-month high as a sharp rise in Treasury yields and swings in oil prices lent support. Markets were cautious, however, because key U.S. data due this week could affect expectations for Federal Reserve policy.
# Why yields matter Long-dated Treasury yields climbed to multi-year highs: the 10-year reached levels not seen since 2007 and the 30-year hit levels last observed in 2004. The two-year yield, which is sensitive to monetary policy expectations, approached 5% for the first time in over two years. Higher U.S. yields tend to attract foreign capital and support the dollar relative to other currencies.
# Upcoming U.S. data in focus
# How other markets influenced the dollar Oil: Brent crude traded near $106 a barrel during the session, after moves that reflected doubts over progress to end the Iran war. Volatile oil can influence currencies of commodity-linked economies and can also affect inflation expectations.
Bonds: A broad sell-off in global sovereign bonds helped push U.S. yields higher. That provided an additional support pillar for the dollar even as some of the boost was offset by other market forces.
# Currency specifics
# Regional central bank note Australia was expected to raise rates on the same day, and both the Australian dollar and New Zealand dollar (kiwi) were marginally lower, trading about 0.1% below prior levels.
# What to watch next Market reaction to the PCE inflation reading and monthly payrolls will be the immediate drivers for rates and the dollar. Stronger-than-expected U.S. data would increase the probability of further Fed rate increases and could push the dollar higher. Conversely, softer data could ease rate-hike expectations and weigh on the dollar.
# Bottom line
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