US dollar remains near its peak as US bond yields surge, while the People’s Bank of China strengthens the yuan.

By Kevin Buckland

TOKYO (Reuters) ‌– The U.S. dollar is holding strong, nearing a 10-week peak against ⁢major currencies and‌ reaching its highest level against the yen since November. This is​ due to rising Treasury yields, which have‌ reached post-financial⁢ crisis highs, leading to speculation that ​U.S. interest‌ rates will​ remain high​ for a longer period‍ of time.

China’s central bank has taken steps to strengthen⁤ the yuan by setting ‍a daily mid-point that is much stronger than expected. This has helped stabilize the currency, which has been under pressure recently due⁤ to concerns over China’s slow response to its slowing economy and struggling ⁢property sector.

The U.S. ‍dollar index, which measures the currency ​against six developed-market counterparts, slipped slightly to 103.24, but remains close to its recent high of 103.68, a level not seen since June 12.

Richard‍ Franulovich, a currency strategist at Westpac, ⁣noted that the combination of surging U.S. yields and China’s policy response has been providing a bullish boost to the U.S. dollar.

Looking ahead to Fed chairman Jerome Powell’s upcoming speech at the U.S. central bank’s annual​ symposium, Franulovich believes that if Powell hints at ⁢future rate hikes, it could further strengthen ‍the dollar, potentially pushing the dollar index above 104.

Currently, money markets are predicting less than a 50% chance ⁢of another 25 basis‌ point Fed hike by November, before the central bank transitions to rate cuts next year.

The dollar-yen pair, which is highly sensitive to changes in U.S. Treasury​ yields, saw the dollar edge ⁤slightly lower to 146.125 yen. However, it had previously reached 146.425, coming close to its recent⁣ peak of 146.565, the‌ highest since November⁢ 10.

The euro gained 0.1% against the dollar, reaching ⁢$1.09055.

Meanwhile, China’s ​central bank set‌ the yuan mid-point at 7.1992 per dollar, which was 1105 pips stronger than expected. This ⁤move aims ⁣to support the yuan and⁤ prevent‌ it‌ from sliding further after⁤ reaching a 9​ 1/2-month low of ⁣7.349 in⁢ offshore trading⁣ last week.

The⁣ offshore yuan remained relatively unchanged at 7.2872 after the fixing, showing a slight increase ‍of about 0.1%.

The Australian ‌dollar, often seen as⁣ a⁣ proxy for ⁤China, ‍also ⁢remained stable at $0.6413 after a slight initial strengthening following the fixing.‍ The Aussie dollar has ‍been gradually recovering after hitting a 9‍ 1/2-month low ​of $0.6365 last week.

Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, believes⁣ that a significant Chinese stimulus package focused on infrastructure spending is needed to reverse the downtrend in AUD/USD. She also warns of a “growing risk”⁢ of the Aussie dollar dipping below $0.60 this year.

(Reporting by Kevin Buckland; editing​ by Simon Cameron-Moore)

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