The dollar firm kept below a two-decade high versus major peers on Tuesday. Moreover, investors braced for the Federal Reserve to continue its aggressive interest rate hiking campaign to control in overheated inflation.
The dollar index was flat at 109.53, steady for the moment after pulling back from as high as 110.79 earlier this month, a level not seen since June 2002.
The two-year U.S. Treasury yield, which is extremely sensitive to policy expectations, increased as high as 3.970 percent overnight for the first time since November 2007. The 10-year yield achieved a high of 3.518 percent, a level not seen since April 2011.
Investors have fully priced another 75 basis point bump by the Federal Open Market Committee for Wednesday, and lay 19 percent odds for a super-sized full percentage point rise.
While still heightened, those bets have come down from around 38 percent on Wednesday, when they were shocked higher by a surprise acceleration in U.S. consumer prices for August.
The dollar dipped 0.15 percent to 142.96 yen, continuing a week-long consolidation following two attempts at 145 this month that took it as high as 144.99 on Sept. 7 for the first time in 24 years. The dollar-yen currency both handles to track the long-term yield spread between U.S. and Japanese government bonds.
The Bank of Japan decides policy on Thursday. It is widely expected to keep its ultra-easy stimulus settings changeless. They involve pinning the 10-year yield close to zero.
“We have to see the FOMC,” a strategist at J.P. Morgan in Tokyo Tohru Sasaki stated.
“Dollar-yen will eventually break above 145, but the speed depends on how hawkish the Fed is, and developments in interest rate differentials.”
The euro was flat at $1.0030, after grinding slowly higher over the past week and strengthening its position above parity. It lowered as low as $0.9864 on Sept. 6 for the first time in two decades.
Sterling stabled at $1.14295, finding its feet after a drop to a 37-year low of $1.13510 at the end of last week.
The Bank of England will decide policy on Thursday. Investors are split over whether a 50 or 75 basis point hike is on the way.
The risk-sensitive Australian dollar declined 0.07 percent to $0.6722 and the New Zealand dollar fell 0.23 percent to $0.59435.
Bitcoin decreased 0.48 percent to $19,445, after swinging between a two-month low of $18,540 and a 3 1/2-week high of $22,781 over the past two weeks.
