The Dollar Index, which measures the greenback against six peers, climbed as high as 99.640 in early trading, its highest since May 2020, before stabilizing slightly lower.
The index gained 0.5% on Tuesday after Fed Governor Lael Brainard said she expected a combination of interest rate hikes and a rapid balance sheet liquidation to bring the US monetary policy to a “more neutral stance” later this year, with further tightening to follow if needed.
Ms Brainard is normally seen as a more dovish policy maker.
“Ms. Brainard’s comments are the immediate cause of the rally in yields and the stronger dollar that we are seeing,” said Ray Attrill, global head of FX strategy at National Bank of Australia.
The US 2-year yield is its highest level since January 2019, the 5-year yield its highest level since December 2018, and the benchmark 10-year yield rose to 2.6144%, its highest level since March 2019. [US/]
“But when we’re talking about the dollar, it’s hard to decouple it from the euro-dollar exchange rate, given its weight in the index, and the euro hasn’t been favored by the latest talk of widening sanctions, which spells bad news for the economy of the eurozone,” Attrill added.
The euro was at $1.0894, its lowest level in almost a month.
The sanctions proposed by the European Union would ban the purchase of Russian coal and prevent Russian ships from entering EU ports, part of an intensification of Western sanctions against Russia following its invasion of the EU. Ukraine for almost six weeks.
Dollar gains were broad based. It was up 0.17% against the Japanese yen, at 123.84, after hitting a week high early in the session and closing in on March’s high of 125.1, nearly seven years earlier.
The Bank of Japan is keeping Japanese yields lower, and the widening gap between US and Japanese yields is weighing on the yen.
The pound was $1.30750, heading back towards last month’s $1.30, its lowest since November 2020, while the Australian dollar held steady at $0.7574, near Tuesday’s nearly 10-month high after the Reserve Bank of Australia signaled that higher interest rates were near.
Bitcoin was slightly softer around $45,300.