The Greenback Rises Against the Euro

The US dollar spiked higher last week as 10-year Treasury yields hit a 21-month high, sending a number of emerging market currencies spinning lower.

Treasury yields rose to 4.8 percent, their highest level since June 2001, as the market moved to price in a 35 percent probability that short-term rates, currently 4.5 percent, would reach 5.25 percent later in the year.

As both short and long-term U.S. rates have risen, the differential in favor of high-yielding, often emerging market, currencies has narrowed, reducing the incentive for investors to take on board the additional risk of holding these currencies. Reduced liquidity also means less fuel is available for such carry trades.

Although yields came off their peak later in the week, the dollar still rose 1.1 percent to $1.1883 against the euro, 0.8 per cent to $1.7360 against sterling, 1.1 per cent to SFr1.3129 against the Swiss franc and 0.2 per cent to Y117.72 against the yen.