The dollar hovered near a five-month high against a group of major currencies on Wednesday, as a surge in the benchmark 10-year Treasury yield above 3 per cent reignited a rally that had lost steam last week.

The dollar index versus a basket of six major peers added 0.1 per cent to 93.335 after rallying to 93.457 overnight, its highest since December 22.

The greenback had gained with few interruptions since mid-April as easing tensions in the Korean Peninsula and moves by China and the United States to prevent a full-blown trade war allowed investors to focus on the yield advantage the United States enjoys over other countries.

The advance stalled last week after weaker-than-expected April US inflation data, but regained traction overnight as strong US consumer spending numbers sent long-term Treasury yields surging to a seven-year peak of 3.095 per cent .

The 10-year Treasury yield had hovered around 3 per cent since reaching the threshold late last month on concerns about rising inflation and a ballooning federal budget gap. But until Tuesday, 3 per cent level wasn't convincingly broken.

“The dollar stands to benefit, particularly against the euro, on higher Treasury yields. But against the yen, its advance could stall if the negative impact of higher yields on equities is prolonged,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

The yen tends to benefit during times of market turmoil and investor risk aversion. “The next focal point is trying to figure out the yield levels which are bearable for equities,” Ishikawa said.

The uptick in US yields unnerved equity markets and sent Wall Street shares significantly lower on Tuesday. The euro was 0.1 per cent lower at $1.1823 after brushing $1.1817, its weakest since late December. The dollar was little changed at 110.300 yen, having risen to 110.450 overnight, its strongest since February 5.

The yen barely budged after data showed Japan's economy contracted for the first time in nine quarters during January-March.

The Australian dollar was largely flat at $0.7467 after sliding 0.7 per cent overnight. The New Zealand dollar, which fell about 0.75 per cent the previous day to a five-month trough of $0.6855, last traded at $0.6882. The pound was a shade weaker at $1.3499 after slipping to $1.3452 on Tuesday, its lowest since Dec. 29.

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