The US dollar rose on Tuesday, supported by growth in U.S. bond yields, which reached a seven-week high, amid growing concerns in the euro area between the EU and Italy over the country’s budget. The tensions surrounding the European Union led to a sharp decline in the single currency against other major rivals.
Meanwhile, the Chinese yuan remained stable, settling near a 7-week low against the greenback.
For the financial markets, higher U.S. Treasury yields are more important and have more impact than Italy’s financial problems with the EU. Market participants are eagerly waiting to see whether this increase in dollar prices will be long term or is just a natural trend of the market movements.
Many investors dumped U.S. bonds on fears of a fast paced domestic inflation, which prompted the Federal Reserve to accelerate the interest rate hikes.
10-year U.S. Treasury yields rose to a seven-year high of 3.262% on Tuesday. The dollar index, which measures the strength of the greenback against a range of major rivals, rose 0.09% to 95.838 points, after reaching a seven-week high of 96.156 points at the start of the session.
Investors have tended to buy the dollar recently as a safe haven amid fears that markets are slowing global economic growth, especially due to the trade dispute between Washington and Beijing and Italy’s proposals on the huge debt issue. The IMF cut its global growth forecast for 2018 and 2019 to 3.7% from an initial 3.9%.
Italy’s 10-year government bonds rose to a 4-year high, after Italian Economy Minister Giovanni Tria spoke about his controversial plans for Italy’s budget in the Italian parliament.
The rise in the US dollar has hurt emerging currency markets as they struggle with tight liquidity and capital outflows. The Indian Rupee fell to an all-time low of 74.39 rupees per dollar. The yuan also fell against the greenback, reaching the price of 6.9351 yuan per dollar after hitting a monthly low of 6.9238 throughout the beginning of the trading session.
Over the weekend, China’s central bank cut reserve requirements in an effort to add more liquidity to the banking system, raising further concerns about the economic impact of the trade dispute with the United States.