U.S. dollar gains, tracks rise in Treasury yields

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar advanced for a second straight session on Monday, bolstered by the rise in Treasury yields ahead of a slew of Federal Reserve speakers this week who could affirm expectations of the start of asset purchase reduction before the end of the year.

U.S. benchmark 10-year Treasury yields hit a three-month high of $1.516% on Monday. [US/]

Fed officials, including one influential board member, on Monday tied reduction in the Fed’s monthly bond purchases to continued job growth, with a September employment report now a potential trigger for the central bank’s bond “taper.”

Fed Chair Jerome Powell, who will join Treasury Secretary Janet Yellen, speaks before Congress on Tuesday.

The dollar index, which measures the U.S. currency against six major rivals, rose 0.1% to 93.37.

The greenback also extended gains after data showed new orders and shipments of key U.S.-made capital goods increased solidly in August, rising 0.5% in August amid strong demand for computers and electronic products.

But the market has been more focused on the U.S. Treasury market.

U.S. yields climbed to their highest since late June in anticipation of tighter monetary policy after the Fed announced last week it may start tapering stimulus as soon as November and flagged interest rate increases may follow sooner than expected.

“As much as taper in and of itself is not a surprise, an earlier end to its program will reinforce that downside risks to the U.S. dollar have diminished,” Mazen Issa, senior FX strategist at TD Securities, wrote in a research note.

TD expects the Fed to end its quantitative easing program by June 2022.

“If the last taper cycle was any indication, about half of the U.S. dollar’s cyclical upswing was observed three months after taper,” he added.

The euro slipped 0.1% against the dollar to $1.1698, largely ignoring developments in German elections over the weekend, with the Social Democrats projected to narrowly defeat the CDU/CSU conservative bloc.

The dollar rose 0.3% versus the yen to 110.99 yen, after earlier rising to a nearly three-month high. It gained 0.2% versus the Swiss franc to 0.9259 francs.

“The buck has no real reason to decline from where it is, so it will be about looking for what may actually change that as we hear from various sides this week: a new German leadership, a new Japanese head of state, and the U.S. Congress,” said Juan Perez, FX strategist and trader at Tempus Inc in Washington.

The risk-sensitive Australian dollar rose 0.4% to US$0.7289 as fears of widespread market contagion from indebted China Evergrande Group ebbed.

Concerns that Evergrande, China’s second-largest developer, could default on its $305 billion of debt have overshadowed trade in recent weeks, but some of those contagion fears are receding.

The People’s Bank of China injected a net 100 billion yuan ($15.5 billion) into the financial system on Monday, adding to the net 320 billion yuan last week, the most since January.

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Currency bid prices at 3:08 PM (1908 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 93.3840 93.2680 +0.13% 3.782% +93.4940 +93.2060

Euro/Dollar $1.1698 $1.1722 -0.20% -4.25% +$1.1730 +$1.1685

Dollar/Yen 111.0000 110.7350 +0.25% +7.44% +111.0600 +110.5300

Euro/Yen 129.84 129.75 +0.07% +2.30% +129.9300 +129.4900

Dollar/Swiss 0.9260 0.9243 +0.19% +4.67% +0.9291 +0.9246

Sterling/Dollar $1.3707 $1.3670 +0.29% +0.34% +$1.3729 +$1.3661

Dollar/Canadian 1.2620 1.2657 -0.27% -0.88% +1.2672 +1.2610