Dollar steadies at elevated levels; rising yields offer support

The U.S. dollar steadied Wednesday near to new 10-month highs on worries of higher U.S. interest rates, while the euro and sterling fell to six-month lows.

At 03:20 ET (07:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 105.967, having earlier climbed as higher as 106.30.

Kashkari hints at further Fed hike
The hawkish tone in the recent Federal Reserve meeting has been confirmed by Fed officials in recent days, as they flagged the possibility that the central bank would need to raise interest rates further after pausing its rate-hiking cycle last week.

That has sent U.S. Treasury yields soaring in recent days as traders adjusted for monetary conditions remaining tighter for longer than initially thought.

The benchmark 10-year yield was last at 4.5255%, after hitting a 16-year high of 4.5660% in the previous session, resulting in the dollar index climbing to levels last seen in November last year.

German GfK sentiment index set to fall in October
Additionally, EUR/USD fell 0.1% to 1.0562, trading just above the six-month low of 1.0555 seen earlier in the session.

Sentiment among German consumers is set to fall in October, with the GfK institute’s consumer sentiment index falling to -26.5 heading into October from a slightly revised -25.6 in September.

“This means that the chances of a recovery in consumer sentiment are likely to have fallen to zero before the end of the year,” said GfK analyst Rolf Buerkl.

GBP/USD also fell 0.1% to 1.2153, after hitting a six-month low of 1.2136 earlier on Wednesday.

The euro is on course to lose more than 3% for the quarter, its worst quarterly performance in a year, while sterling is heading for a quarterly loss of more than 4%.

Yen close to intervention levels
Elsewhere, USD/JPY edged higher to 149.06, near the yen’s weakest level in over 11 months after the minutes of the Bank of Japan’s July meeting, released earlier Wednesday, showed that policymakers agreed on the need to maintain ultra-loose monetary settings.

This pair tends to be sensitive to changes in long-term U.S. Treasury yields, meaning that a break of the 150 level looks likely in the near-term, which could attract intervention by Japanese authorities.

AUD/USD fell 0.2% to 0.6381, despite data pointing to an acceleration in Australia’s inflation last month, while USD/CNY fell 0.1% to 7.3045, with the yuan helped by data showing China’s industrial profits rebounded sharply in August.