Dollar extends recovery from three-year lows as yields rise

Key Points
  • Dollar index hits six-day high
  • U.S. Treasury auctions seen as test of investors' appetite
Frank van den Bergh | E+ | Getty Images

The dollar rose to a six-day high against a basket of major currencies on Tuesday, extending a rebound from a three-year low last week, helped by rising U.S. Treasury yields and as some traders trimmed overstretched bets against the U.S. currency.

The dollar index, which measures the greenback against a basket of six major currencies, was up 0.71 percent at 89.73, on pace for its best one-day gain in nearly two weeks.

"I think, right now, what we are seeing is just a little bit of profit-taking (in other currencies), a little bit of bargain-hunting," said Omer Esiner, chief market strategist with Commonwealth Foreign Exchange in Washington.

"I hesitate to say sentiment is meaningfully changing at this point," he said. "There are some really well-entrenched trends that continue to work against the U.S. dollar."

The dollar has sold off in recent months on worries that the Trump administration's recently passed tax cuts and plans for large government spending would balloon the deficit.

Any positive impetus from rising U.S. interest rates has been offset by a barrage of bearish factors, including worries that the U.S. government is pursuing a weak dollar strategy.

Traders in the currency market were also watching this week's large U.S. government debt auctions for clues to international investors' appetite for U.S. assets.

Some of the U.S. government's short-term borrowing costs rose to their highest level in more than nine years on Tuesday as Treasury raised $179 billion in the bond market to fund spending and make debt payments.

Tuesday's Treasury auctions made up more than half of the $258 billion in supply scheduled for sale this week.

"Obviously one or two auctions don't necessarily make a trend, but if we do start to see more of a trend of declining foreign investor demand for U.S. assets, that's exactly what's at the heart of some of the dollar's weakness," Esiner he said.

Dollar weakness cannot go on: Pro

The dollar was up 0.62 percent against the , while the euro slipped 0.60 percent against the greenback.

Sterling recovered ground against the dollar and rose against the euro on Tuesday after a media report said the European Parliament would call for giving Britain "privileged" single-market access as Britain negotiates its exit from the European Union.

Bitcoin hit more than a three-week high on the Luxembourg-based Bitstamp exchange and was up 4.92 percent at $11,708.28.