Dollar Index Hits Two-Month High Amid Rising Treasury Yields

The US Dollar Index has continued its upward trend, reaching around 101.15 in early European trading hours on Friday. This marks the second week of gains for the index, despite a slight decline on the day.

The rise in the dollar is largely attributed to higher US Treasury bond yields and hawkish comments from Federal Reserve officials. The 30-year US Treasury bond yield reached its highest level since June 2004 at 5.502%, while the 10-year Treasury yield climbed to a level not seen since June 2007 at 5.225%. Markets are now pricing in nearly a 67.5% chance of a Fed October benchmark rate hike, up from 55.4% a week earlier and 11% a month earlier.

Khoon Goh, head of Asia research at ANZ, noted that while the dollar is getting a bid from higher yields, there are still concerns about the US fiscal position and unpredictability of policy making. Strategists at Brown Brothers Harriman emphasized that the same forces lifting the USD are driving Treasury yields higher and contributing to the global bond market selloff.

In technical analysis, the Dollar Index maintains a constructive tone despite being in an overbought condition. The immediate resistance level is seen at 101.35, where buyers could begin to hesitate. If the dollar breaks through this level, it could pave the way for further gains towards June's high of 101.80.