The U.S. dollar strengthened on Tuesday as long-dated Treasury yields climbed to fresh multiyear highs, offsetting geopolitical risks and policy uncertainties around the yen. The ICE U.S. Dollar Index consolidated within its recent range, while the greenback tested session highs near JPY160.20, a level last seen before Japan’s late-July currency intervention.
U.S. Treasury Secretary Bessent said on CNBC that "disorderly" yen moves could destabilize global markets, though implied volatility in dollar-yen options has eased since the intervention. Three-month implied volatility, which surged to 8.8% in late July, now stands at about 7.5%, still elevated relative to pre-intervention levels. Swaps markets price a 23-basis-point chance of a Bank of Japan rate hike at its upcoming meeting, up from roughly six basis points in late July, despite Japanese officials emphasizing the central bank’s independence under the BOJ Act.
The dollar’s gains were underpinned by rising U.S. yields, with the 10-year Treasury approaching 4.80% and the 30-year yield slightly above 5.27%, levels not seen in years. The Treasury’s plan to boost bond buybacks starting this week did not deter the advance in long-dated yields.
In G10 currencies, the euro traded near $1.1590 after testing $1.1625 in early Asian turnover, with a break below $1.1575 eyed as a potential catalyst for a move toward $1.1530. Options for €1.8 billion at $1.1600 expire today. The British pound recovered roughly half of its pre-weekend losses, holding within a $1.3525–$1.3600 range, though intraday momentum indicators suggest downside pressure may follow. The Canadian dollar briefly touched two-week highs above CAD1.3910 before retracing to session lows near CAD1.3845, with resistance noted around CAD1.3910.
The Australian dollar posted a bearish outside-day reversal, falling from session highs above $0.7170 to lows near $0.7080 before paring losses. Momentum indicators point to further downside, with the $0.7100 level in focus ahead of options expirations totaling nearly A$665 million today.
Emerging market currencies showed mixed performance. The Mexican peso consolidated near MXN17.00, with a close above MXN17.0350 seen as a bullish signal for the dollar. The Colombian peso weakened to its lowest level since August 4 amid concerns over widening fiscal deficits and rising external borrowing, with a break of COP3244 potentially opening the path to COP3300. The offshore yuan traded in a narrow band around CNH6.72, as G20 finance ministers declined to formally endorse U.S. calls to review trade terms with China ahead of the Trump-Xi meeting later this month.
Oil prices extended gains following attacks on vessels in the Strait of Hormuz, with October WTI briefly surpassing $86.80 before stabilizing. Gold and silver declined for a second consecutive session, with gold fraying initial support near $4,365 and silver dipping below $64.50, its lowest level in seven days.
Global equities were broadly lower, with the S&P 500 and Nasdaq futures extending losses after failing to close the previous session’s gap. Asia Pacific markets were mixed, while Europe’s Stoxx 600 fell nearly 0.8%, marking its largest decline since late July. Benchmark bond yields rose across major regions, with European and U.S. 10-year yields up 3–5 basis points, and Japanese 10-year yields climbing above 3% for the first time in months.
