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Title: Dollar Rises as Treasury Yields Hit 2-Year High; BoJ Disappoints Hawks

Jan 18, 2022 03:17AM ET

By: AnalysisWatch

The dollar rose in early trading in Europe on Tuesday, rallying as inflation fears drove US 10-year government bond yields to their highest level in more than two years.

The yield on the benchmark 10-year US bond rose as high as 1.86% overnight, a level it last reached when virtually no one outside China had heard of COVID-19. The two-year benchmark yield, which is more sensitive to expectations for short-term interest rates, also crossed the 1% mark for the first time in two years.

At 3 a.m. ET (0800 GMT), the dollar index, which tracks the greenback against a basket of advanced economic currencies, was 0.1% higher at 95.287.

The dollar briefly returned above the 115 yen level after Bank of Japan Governor Haruhiko Kuroda said the bank had not discussed the possibility of raising interest rates, as had been reported in newspapers last week. This was despite the fact that the bank raised its inflation forecast for the next two years slightly, at 1.1%. This is still well below the bank's target of 2%.

Earlier this month, the dollar reached a five-year high against the yen on expectations that the Federal Reserve would tighten monetary policy much more than the Bank of Japan this year.The Fed's first monetary policy meeting of the year is next week, and policymakers went into their usual blackout period ahead of that meeting.

The euro was also little changed against the dollar at $1.1402 ahead of the release of the German ZEW Economic Sentiment Index for January.

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