Investing.com - The U.S. dollar rose to almost six-month highs against a currency basket on Wednesday, helped by gains in long-term U.S. Treasury yields, sending the euro below the $1.18 level.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, rose 0.24% to 93.36 by 06:16 AM ET (10:16 AM GMT), the most since mid-December.
Demand for the dollar continued to be underpinned after a surge in U.S. government bond yields gave fresh impetus to a rally that had lost momentum last week.
The dollar jumped higher on Tuesday after a U.S. retail sales report indicated that consumer spending is on track to rebound after a soft patch in the first quarter, underlining expectations for continued economic growth.
The dollar was also boosted by the surge in U.S. Treasury yields following the report, as traders continued to price in a faster pace of rate hikes by the Federal Reserve this year.
The yield on 10-year U.S. Treasury notes rose as high as 3.095%, the highest level since August 2011. Bond yields move inversely to prices. The yield subsequently came off that level and was last at 3.061%.
Yields have climbing higher since the Fed said on at its May meeting that inflation is moving closer to its 2% target. The Fed raised rates in March and projected two more rate hikes this year, although many investors see three hikes as possible.
The euro fell below the 1.18 level against the dollar, with EUR/USD plumbing a low of 1.1795, a level not seen since December 19.
The euro remained on the back foot amid reports that a possible future Italian government would ask the European Central Bank to forgive €250 billion ($296 billion) of Italian debt.
The dollar slipped lower against the yen, with USD/JPY losing 0.18% to trade at 110.11 after hitting 110.45 on Tuesday; the most since February 2.
The yen showed little reaction to news that Japan’s economy contracted by a larger than forecast 0.6% in the first quarter, amid declines in investment and consumption and weaker export growth.
The pound fell to the day’s lows, with GBP/USD down 0.19% to 1.3479, within close reach of Tuesday’s five month trough of 1.3450.
The Australian dollar pushed higher, with AUD/USD rising 0.28% to 0.7493 after ending the previous day down 0.77%.
The New Zealand dollar also gained ground, with NZD/USD climbing 0.44% to 0.6892 after reaching a five-month low of 0.6849 overnight.