The dollar hit a three-week high against the yen on Thursday, on course for a fourth straight day of broader gains after a strong ADP job number in the previous session broke 10-year US government bond yields out of a long-held range.
As the dollar struggled last week to make more progress on the back of a flip in money markets towards a rise in official US interest rates this month, a number of analysts had pointed to muted moves in 10-year yields as one element holding the currency back.
It broke above 2.52 per cent for the first time this year on Wednesday and was trading at close to 2.58 per cent in early trade in Europe on Thursday. That helped the dollar jet half a per cent higher to 114.90 yen.
Citi currency strategist Josh O'Byrne said that expectations of a positive shift in the European Central Bank's rhetoric on the economy ahead of a statement and news conference later on Thursday may also have played a role in those moves.
“We broke 2.52 per cent yesterday, which was the high of the range in recent weeks and certainly there seems to be some more optimism (around the dollar),” he said.
“Less dovish expectations on the ECB are helping diminish some of the pressure on long-end yields in the US too and that is having more influence on the dollar against some of the higher yielders and dollar yen.”
The dollar was also marginally higher at $1.0547 per euro and traded above 102 on the index against a basket of currencies used to measure its broader strength.
The European Central Bank is set to keep monetary policy on hold on Thursday as it casts a cautious eye ahead to high-risk elections in the Netherlands and France during an upsurge in populist, anti-establishment sentiment.
But there is growing speculation in markets that improving growth and rising inflation will allow it to begin to withdraw its emergency stimulus for the economy at the end of this year.
A German banking association said that the bank should begin on Thursday to prepare the ground for an exit from its ultra-loose monetary policy.
Oil- and commodity-linked majors including the Canadian, Australian and New Zealand dollars and the Norwegian crown all hit multi-week lows after supply issues provoked a five per cent slump in oil prices on Wednesday.
“The Canadian dollar has been a victim of hawkish interest rate expectations in the United States, lower oil prices and a Bank of Canada that has expressed concern over the outlook for the Canadian economy,” analysts from currencies exchange LMAX said in a morning note.
“Wednesdays stellar US ADP print and another big slide in oil have opened fresh 2017 lows.”