Dollar index passes 101 for first time in two years as yen slide continues

The dollar index rose past 101 for the first time since March 2020 on Tuesday, as the greenback set its latest 20-year high on the yen and tested a two-year peak on the euro, supported by high U.S. Treasury yields and expectations of good economic data.

The dollar index, which measures the greenback against six peers, was last at 100.99, up 0.2%, having risen as high as 101.02 in early trade. It has gained 2.6% so far this month.

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"I think the broad dollar trend reflects U.S. economic outperformance, while we`ve seen some initial impacts of higher energy prices from the Ukraine war elsewhere, especially in the euro zone," said Carol Kong, FX strategist at Commonwealth Bank of Australia.

She added that she was watching purchasing manager index data due in several markets on Friday.

"If we get weak PMI numbers in the euro zone or elsewhere, then markets could potentially downgrade their expectations for the global economy, but I don`t think the U.S. PMI will be particularly weak, so we`ll see some contrast there, which would probably support the dollar," she said.

"Of course, the big driver for dollar-yen has been surging U.S. bond yields."

The dollar`s gains have been most striking against the against the Japanese currency, and on Tuesday it climbed 0.73% to 127.88 yen, its highest level since May 2002.

It has risen 4.5% on the yen so far this month, which would be its second-biggest monthly percentage gain since 2016 behind last month`s 5.8%.

The benchmark U.S. 10-year Treasury yield on Tuesday was at 2.8376 hovering just off its three-year high of 2.884% hit Monday, while the Bank of Japan has been intervening to keep the yield on Japanese 10 year government bonds around 0% and no higher than 0.25%.

Many investors are betting the yen has further to fall. The latest CFTC data for the week ending April 12 shows net short yen positions are the largest in three and a half years.

Japanese Finance Minister Shunichi Suzuki said on Tuesday the damage to the economy from a weakening yen at present is greater than the benefits from it, the most explicit warning against the currency`s recent slump.

Elsewhere, the dollar rose to as high as 0.9466 Swiss francs, its highest in a year, and was also testing peaks against other majors.

The euro was at $1.0776, just off last week`s two-year low of $1.0756, and sterling was at $1.3009, in sight of its 18 month low against the dollar of $1.2973, also hit last week.

European currencies weren`t helped by the latest fighting in Ukraine, which said Russia had started an anticipated new offensive in the east of the country.

The Australian dollar rose 0.3% from Monday`s one-month low and was at $0.737, given some support by minutes published Tuesday from the Reserve Bank of Australia`s April policy meeting, which suggested the central bank was edging closer to raising interest rates for the first time in more than a decade due to accelerating inflation.

Bitcoin also managed to find its feet, trading around $40,800 on Tuesday after hitting a one-month low of $38,547 on Monday.