Dollar Increases as Treasury Yields Score 2-Year High

The yield on the 10-year U.S. benchmark climbed as high as 1.86% in the overnight session. This was a level it last saw when almost no one outside China had heard of coronavirus. The two-year benchmark yield is more sensitive to anticipations for short-term interest rates. It also broke past 1% for the first time in two years.

The dollar index follows the dollar against a basket of advanced economy currencies. By 3 AM ET (0800 GMT), it was up 0.1% at 95.287.

The dollar returned shortly past the 115 yen level after Bank of Japan Governor Haruhiko Kuroda said the bank hadn’t debated the possibility of raising interest rates. Even though the bank expanded its inflation outlook slightly to 1.1% for the next two years, that is still well below its 2% target.

USD/JPY sold at 114.79, up 0.2% on the day

The dollar had struck a five-year high against the yen earlier this month, amid expectations that the Federal Reserve will pull monetary policy much more this year than the BoJ. The Fed’s first policy conference of the year takes place next week. Policymakers have now joined their usual blackout period ahead of it.

In Europe, the pound was flat versus the dollar at $1.363. However, it edged up against the euro, notwithstanding numbers showing that lay-off fell by less than expected in the three months through November. Analysts zeroed in on a sharp downward revision to the claimant count in November and to a bigger-than-expected decline again in December, indicating that the U.K. economy rode out the first part of the winter wave of coronavirus comfortably enough.

The euro was slightly changed versus the dollar at $1.1402, ahead of January’s German ZEW economic sentiment index release.