The US dollar is at a 10-month high against major currencies, supported by rising US bond yields and strong economic data. The 10-year Treasury yield has increased by over 45 basis points in September, reaching its highest level since 2007. While markets are pricing in a 40% chance of another rate hike by the Federal Reserve this year, the chances of further rate increases in Europe are slimmer. This has buoyed the US dollar, which many had expected to weaken once short-term rates peaked. The euro and Chinese yuan are particularly vulnerable to the strength of the dollar.

The Swiss franc and the yen are both weakening. The Swiss franc has fallen to its lowest level since June after the Swiss central bank unexpectedly kept short-term rates steady. The yen is steadily sliding towards the 150-per-dollar mark, a level that could trigger intervention by the Japanese finance ministry. Rising commodity prices have provided some support to antipodean currencies, but they have mostly traded sideways in the past month. China’s yuan is under pressure as concerns grow about the country’s property market and its impact on economic growth.

Despite expectations of a slowdown in the US economy, the dollar could still find support due to safe-haven demand amid concerns about weak global growth. The dollar is unlikely to weaken significantly until there are clear signs of rate cuts by the Federal Reserve. Some analysts believe that the euro/dollar exchange rate could fall further from its current level of $1.06. US consumer confidence and home sales data, due later on Tuesday, are expected to show a slight weakening, but are unlikely to have a significant impact on the dollar.

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