By Yasin Ebrahim
Investing.com – The dollar is set to end the month sharply higher Thursday, riding a wave of positive headwinds including expectations for Treasury yields to continue their advance into year-end as the Federal Reserve prepares to tighten monetary policy.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.59% to 94.33, to its highest level since November last year.
“Keep an eye on the USD index … the base this currency is building has been very impressive, and it implies we could continue to see dollar strength in the coming months,” Janney Montgomery Scott said.
The greenback has been supported by a sharp increase in Treasury yields amid an increase in real rates.
“US interest rates have moved sharply higher during the past two weeks, driven almost entirely by real rates,” Goldman Sachs (NYSE:GS) said in a note.
Since September 15, the real 10-year U.S. Treasury yield has increased by 20 basis points to 0.85%.
The trend of higher rates is expected to continue as inflation continues to pick up pace and the Federal Reserve is set to begin tightening monetary policy.
“Given the low-yielder prevalence of Europe and the Yen in (dollar index) DXY weightings, expect the short-end story to keep DXY bid,” ING said in a recent note.