SYDNEY (Reuters) - The dollar hovered at a near three-year high against a basket of major currencies in Asia on Thursday, having risen broadly as Treasury yields jumped on the prospect that the Federal Reserve might scale back its stimulus program this year.
The dollar index stood at 84.381 .DXY after gaining more than 0.5 percent on Wednesday to reach a peak of 84.422, a high not seen since July 2010. Against the yen, it rose 0.1 percent to 103.23, within reach of a 4-1/2 year high of 103.74 set overnight.
The move came after Fed chief Ben Bernanke, in testimony to Congress, said that if economic improvement continued, the Fed could “in the next few meetings take a step down” in its purchases and warned that holding interest rates too low for too long has its risks.
But Bernanke said that any decision to ease up on bond purchases would not mean the Fed would automatically push for a complete roll back of the stimulus.
“Rather we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward,” he said.
Still, dollar bulls cheered, bidding the greenback up across the board. As a result, the euro skidded to $1.2834 from a high near $1.3000 on Wednesday. It was last 0.2 percent lower at $1.2839, not far from this month’s nadir of $1.2796 set last week.
The greenback’s rise was even more dramatic against commodity currencies. The Australian dollar, which fell more than 1 percent in the previous session, was down a further 0.3 percent at a fresh one-year low of $0.9656. It was moving ever closer to its 2012 trough of $0.9581.
Treasury bonds beat a hasty retreat, driving the benchmark 10-year yield above the key 2 percent level for the first time in two months.
Markets also ignored the fact that Bernanke set the bar high for any scale-back of the Fed’s bond purchases, leading some analysts to question the sustainability of the dollar’s rise.
“We think tapering expectations will ultimately be undermined by deterioration in U.S. activity in the weeks ahead,” said Daniel Katzive, strategist at BNP Paribas.
“However, the U.S. calendar is quiet now until the week after next, when key monthly releases such as ISM and the May employment report arrive.”
Another standout currency overnight was the Swiss Franc, which came under pressure after the country’s central bank chief did not rule out negative interest rates and said policymakers could adjust the currency cap if necessary.
That saw the euro rise as far as 1.2650 francs, its highest since May 2011.
In Asia, the focus will be on HSBC’s early report on China’s manufacturing sector. In April, the survey showed growth in the factory sector had eased as new export orders fell, putting at risk a recovery in the world’s second biggest economy.
Any disappointment could heap more pressure on commodity currencies like the Australian dollar, traders said.
Reporting by Ian Chua; Editing by Shri Navaratnam