The dollar settled at 10-month highs against a basket of major currencies on Tuesday, supported by US bond yields hitting 16-year highs, while the yen continued to decline to remain in the risk zone of intervention.
A combination of strong economic data, tightening rhetoric from the Federal Reserve and a budget deficit to be financed by borrowing pushed the yield on 10-year Treasuries up more than 45 basis points in September to 4.5 percent for the first time since 2007.
The markets expect a 40 percent increase in US interest rates again this year, in exchange for fewer chances of another hike in Europe. The spread helped support the dollar, which many were betting would fall quickly when the US central bank signals the end of the interest rate hike.
The euro fell 0.5 percent on Monday and settled at a six-month low of 1.0584 dollars. It is on track to fall three percent this quarter, in what is the worst quarterly percentage loss in a year.
The British pound is also heading for an end to a three-quarter gain, incurring a quarterly loss of 3.8 percent. The pound fell to a six-month low of 1.2195 dollars overnight and was trading slightly above this level in the Asian session.
The dollar index touched its highest level since November at 106.1 on Monday and hit 106.03 on Tuesday.
The yen slowly but steadily retreated towards the 150-dollar level as policymakers stuck to ultra-loose monetary policy.
