This report incorrectly stated the U.K. pound move. It has now been corrected.
The U.S. dollar gained ground against its rivals Thursday as the 10-year Treasury yield edged higher, flirting with the psychologically important 3% mark.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.14% which measures the greenback against six developed market currencies, climbed 0.3% to 89.889. The broader WSJ U.S. Dollar Index BUXX, +0.18% was 0.3% higher at 83.89
The euro EURUSD, -0.1539% fell to $1.2347, compared with $1.2376 late Wednesday.
The British pound GBPUSD, -0.2485% added to Wednesday’s slide and weakened to $1.4084 from $1.4205.
Versus the Japanese yen USDJPY, +0.21% the dollar rose to ¥107.43 from ¥107.23. The buck also strengthened against the Swiss franc USDCHF, +0.0618% retracing previous losses, buying 0.9714, down from 0.9686 francs late Wednesday in New York.
In Asia trade, the Korean won USDKRW, +0.26% outperformed Thursday, on hopes for improved relations between North Korea, its southern neighbor, and the U.S. The dollar fell to a two-week low of 1,059.20 won during the Asian trading session, but recovered to fetch 1,067.54 won, up 0.2%.
Elsewhere, the Mexican peso USDMXN, +0.0640% experienced a significant selloff, dropping 2% against the dollar to a three-week low, according to FactSet. This happened even as traders continue to bet on a North American Free Trade Agreement deal in May, with the weakness attributed to repositioning and profit-taking. One dollar last fetched 18.4424, down from 18.0823 late Wednesday.
What is driving the market?
The U.S. dollar found a catalyst in the 10-year Treasury yield TMUBMUSD10Y, +0.29% on Thursday, which climbed to its highest level in two months and edged toward the psychologically important 3% level.
Elsewhere, a spokesperson of China’s State Administration of Foreign Exchange, or SAFE, said that the dollar would likely remain under pressure, and that the yuan USDCNY, +0.1481% USDCNH, +0.0637% would remain stable this year.
Despite its better performance on Thursday, the dollar has been weak in the year-to-date, as market participants worry about the long-term prospects of the U.S. economy. Earlier, Federal Reserve Gov. Lael Brainard spoke of sign of financial imbalances in the economy, including asset valuations and leverage.
The British pound remained in focus, shaking off weaker than expected real estate figures recovering from Wednesday’s slide that was inspired by disappointing inflation figures. On Tuesday this week, sterling had reached a new post-Brexit high, but the rally didn’t stick.
In Europe, German Chancellor Angela Merkel and French President Emmanuel Macron are meeting to talk eurozone and EU reforms.
What are strategists saying?
“Benchmark government bond yields in the U.S. have been creeping up again over the past few weeks,” said Fawad Razaqzada, market analyst at Forex.com, who notes that along with short-term rates, expectations of Fed hikes have also been on the rise. ”And if these expectations remain elevated then we may see the dollar make a more meaningful comeback in the coming days and weeks.”
Another “notable point is that behind the headlines risk markets are improving with strong earnings, accommodative financial conditions and firming commodities,” wrote Mark McCormick, North American head of FX strategy at TD Securities.
What else is on deck?
First-time jobless claims for the week ended April 14 came in at 232,000, more or less in line with the consensus estimate of 230,000. The Philly Fed index for April rose to 23.2 versus 22.3 before.
Leading economic indicators rose 0.3% in March, compared with 0.7% in February.
Randal Quarles, the Fed’s vice chairman for supervision, testified about regulatory reform before a Senate committee, while Cleveland Fed President Loretta Mester is scheduled to deliver a speech Thursday evening at 6.45 p.m. Eastern.
In other assets, U.S. stocks fell, with both the Dow Jones Industrial Index DJIA, -0.34% and S&P 500 SPX, -0.57% in the red and consumer staples on track for their worst session in two months.