NEW YORK, March 3 (Reuters) – The Japanese yen hit a seven-month low on the dollar on Thursday as hopes that vaccine distribution and more government stimulus will lead the US economy to a solid rebound pushed up the greenback and Treasury benchmark yields.
But rising benchmark yields could weigh on Asian equities, as suspicious investors recall last week’s government bond sell-off that spiked yields, spooked stock markets and pushed stocks down.
By early Thursday, Australian stocks had lost 1% and E-mini S&P futures slipped 0.25%.
US stocks had fallen overnight as investors sold high-tech stocks to focus on other areas that could benefit from an economic recovery.
Investors’ focus on an economic rebound was not hampered by overnight data that showed the U.S. labor market struggling in February, when private sector payrolls grew less than expected.
Instead, currency investors continued to nibble on dollars as they bet on a US economy outperforming its peers in the developed world in the months to come.
A stronger dollar pushed the Japanese yen to a low of 107.06 yen, a level not seen since July. As of early Thursday, the Japanese yen rose to 107.06 yen.
Optimism about the US economy boosted the greenback against a basket of currencies, as the dollar index rose 0.28% to 91.062.
“The US dollar / yen has been on a one-sided path since early 2021,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia. “The improving outlook for the global economy is positive for the US dollar / yen and the Australian dollar / yen.”
Against the Australian dollar, the yen traded at 83.09 yen.
A sign of bullish investors’ bets on the US economy, the US yield curve steepened overnight. The spread between two- and ten-year Treasury bill yields widened to 135.4 basis points on Wednesday, the most since February 26, when the curve steepened the most since 2015.
At the start of Thursday trading, the 10-year Treasury yield climbed to 1.482%, although off the one-year high of 1.614% reached last week.
All eyes will be on Federal Reserve Chairman Jerome Powell, who is due to speak at 5:05 GMT on Thursday. Investors will be watching his remarks for signs that the central bank is ready to admit the risk of a rapid rise in interest rates.
A stronger dollar weighed on gold as bullion prices fell to $ 1,709.7471 an ounce.
Oil prices softened early Thursday, after jumping more than 2% overnight, boosted by a huge drop in U.S. fuel inventories and expectations that OPEC + producers may decide not to increase their production at their meeting next week.
US crude fell 0.47% to $ 60.99 per barrel.
Koh Gui Qing report; Editing by Sam Holmes