The US dollar remained strong on Wednesday, boosted by higher US bond yields, and gained against the Japanese yen as calm markets encouraged investors to resume trading, while European markets digested German inflation data.
The dollar hit as high as 157.41 yen on Wednesday, returning to levels that prompted intervention from Tokyo in late April and early May, although rising at a slower pace than last month. Last, it was at 157.10 yen, stable throughout the day.
Slightly softer US consumer price inflation data this month weakened the US dollar. Since then, however, US Treasury bond yields have rebounded, with the benchmark 10-year bond yield at its highest level in nearly four weeks at 4.57%.
Underwhelming auctions for two-year and five-year notes on Tuesday that cast doubt on demand for US government debt, and data showing that US consumer confidence rose unexpectedly in May, were the drivers behind the rise in yields.
The US Dollar was up 0.12% against the yuan trading at 7.2774, a six-week high.
“Continued weakness in the yuan has a negative impact on G10 currencies. Australia's inflation data today should have a big positive impact on the Australian dollar," said Harvey.
The Aussie dollar exposed to the Chinese market was down 0.3% at $0.6630, even as Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to the risk that the next move in local interest rates could be up.
The yen remains under significant downward pressure with increased market interest due to low currency market volatility, Derek Halpenny, head of EMEA global market research at MUFG said in a note, pointing to highs in euro/yen and sterling/yen .
The euro ended European trade reacting to German regional inflation data, falling to a near two-year low against the pound at 84.84 pence. It then recovered after national data showed German inflation rose slightly more than expected to 2.8% in May, although at a level unlikely to upset expectations for an ECB interest rate cut next month.
The common currency was last steady against the US dollar at $1.0838, on course for its first monthly gain of the year. The pound was slightly lower against the US dollar at $1.2738, after hitting a two-month high the previous day, leaving the US dollar index steady at 104.72.
