Dollar Advances Broadly as Treasury Yields Rise

The dollar strengthened broadly as a rise in U.S. Treasury yields above 5% boosted demand for the U.S. currency, while news that North Korea fired short-range missiles off its coast hurt the yen.

The rise in U.S. Treasury yields marked the first time since July 2006 that the entire yield curve was at or above 5%.

Bond yields in the United States and elsewhere have been climbing amid prospects for stronger global economic growth and a belief that central banks will raise interest rates to fight inflation.

Earlier on Thursday, the Reserve Bank of New Zealand unexpectedly raised rates, followed by a hike from South Africa's central bank.

The European Central Bank also raised rates this week, while investors have almost completely withdrawn bets that the Federal Reserve will ease monetary policy this year. Higher interest rates make a currency more attractive.

"With higher Treasury yields, rates of return in the U.S. get more attractive and it's no surprise that the dollar is benefiting from it," said Omer Esiner, a market analyst at Ruesch International in Washington.

The euro was down against the U.S. currency. The dollar was almost flat against the yen and climbed almost 0.4% against a basket of currencies.

The euro gave up earlier gains against the Japanese currency to stand flat on the day, after hitting a lifetime high of 164.61 yen earlier this week.

Demand for the yen also fell after North Korea fired up to two-short range missiles off its west coast on Thursday, the second launch in as many weeks.

"That certainly does not help the yen today," said Mark Meadows, an analyst at Tempus Consulting in Washington.

A report showing U.S. weekly jobless claims largely in line with expectations had little impact on the market.

The U.S. economic calendar is light on Thursday; investors may now focus on a trade balance report slated for Friday.

"With 10-year (Treasury bond) yields in the U.S. picking up above 5%, the yield spread is also giving the dollar some support," said Jeremy Stretch, a strategist at Rabobank.

Earlier, the Australian dollar hit an 18-year high after strong jobs data. After the central bank hiked rates, the New Zealand dollar rose to its highest level against the U.S. currency since being floated in 1985.

The "kiwi" dollar rose against the U.S. dollar, while the Australian dollar strengthened to versus the U.S. dollar, climbing to its highest level since February 1989.

Elsewhere on Thursday, the Bank of England left rates on hold at a six-year high of 5.5%.

However, futures markets are still pricing in further rate raises by the central bank. Sterling traded down against the dollar.

South Africa's central bank raised its key rate by 50 basis points to 9.5%.

"The BoE's decision is weighing on the pound, but looking forward they are likely to raise rates again," said Meadows at Tempus.