Dollar near 11-month highs against yen as bond yields surge

NEW YORK (Reuters) - The U.S. dollar weakened against the euro and yen on Thursday but stayed near recent highs as investors evaluated the impact of a global government bond rout that has lifted benchmark U.S. Treasury yields to seven-year peaks.

FILE PHOTO: Japan Yen and U.S. Dollar notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

Strong economic data and hawkish speeches by Federal Reserve officials, including Chairman Jerome Powell, spooked investors on Wednesday and caused U.S. Treasury yields and the euro/dollar currency pair to breach key technical levels.

“Markets are still trying to figure out what’s driving things,” said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. “Right now it’s whether those technical breaks are sustainable.”

The dollar has outperformed on strong U.S. growth while economic data in other large economies, including the eurozone, has come in below expectations.

Investors are watching for signs of increasing U.S. inflation as companies, including Amazon AMZN.O, raise minimum wages, and after jobs data last month showed that wages notched their largest annual increase in August in more than nine years.

U.S. jobs data on Friday for September will give new indications of wage growth and labor market strength.

Powell on Wednesday talked up the U.S. economy a day after hailing a “remarkably positive outlook,” saying that the United States is on the verge of a “historically rare” era of ultra-low unemployment and tame prices.

The yen JPY= weakened to 114.54 yen against the dollar earlier on Thursday, its lowest in 11 months, before retracing to 113.79.

The Japanese currency was helped by a Reuters report that the Bank of Japan will tolerate further increases in super-long yields as long as the increase does not push 10-year yields well above its zero percent target.

The greenback is facing strong technical resistance against the yen between 114.32 and 114.73, Citigroup technical analysts wrote in a report on Thursday, which may make investors cautious about further dollar gains.

The euro EUR= also recovered from six-week lows against the dollar, after breaching technical support at around $1.15 on Wednesday.

The single currency has been hurt by uncertainty surrounding Italy’s debt, fiscal plans and future ties with Europe, which have unnerved markets and exacerbated tensions with other eurozone leaders.

Editing by Dan Grebler