NEW YORK (Reuters) - The U.S. dollar weakened on Thursday but stayed near recent highs against the euro and yen, as investors evaluated the impact of a global government bond rout that has lifted benchmark U.S. Treasury yields to seven-year peaks.
Strong economic data and hawkish speeches by Federal Reserve officials including Chairman Jerome Powell spooked investors on Wednesday and caused U.S. Treasury yields and the euro/dollar currency pair to breach key technical levels.
“Markets are still trying to figure out what’s driving things,” said Mark McCormick, North American head of FX strategy at TD Securities in Toronto.
“You’re getting a global selloff in rates at the exact same time as you’re getting a rise in global equities,” McCormick said. “It’s a combination that’s not very good for the yen, but it’s also a combination that I don’t think is very sustainable.”
The dollar has outperformed as U.S. growth remains strong while economic data in other large economies including the eurozone has come in below expectations.
The Institute for Supply Management's (ISM) non-manufacturing activity index jumped 3.1 points to 61.6 last month, the highest reading since August 1997, and the ADP National Employment Report showed U.S. private payrolls rose by 230,000 jobs in September, the most since February.
The data comes before the widely watched monthly U.S. Labor Department payrolls report on Friday.
Powell on Wednesday continued to talk up U.S. economic strength a day after hailing a "remarkably positive outlook" for the U.S. economy, which he said is on the verge of a "historically rare" era of ultra-low unemployment and tame prices.
The yen <JPY=> weakened to 114.53 yen against the dollar earlier on Thursday, its lowest in 11 months, before retracing to 114.00.
The Japanese currency was helped by a Reuters report that the Bank of Japan will tolerate further increases in super-long yields as long as the increase does not push 10-year yields well above its zero percent target.
The greenback is facing strong technical resistance against the yen between 114.32 and 114.73, Citigroup technical analysts wrote in a report on Thursday, which may make investors cautious about further dollar gains.
The euro <EUR=> also recovered from six-week lows against the dollar, after breaching technical support at around $1.15 on Wednesday.
The single currency has been hurt by uncertainty surrounding Italy's debt, fiscal plans and future ties with Europe, which have unnerved markets and exacerbated tensions with other eurozone leaders.
