Article Highlights

  • U.S. 2-year yield touches highest since Sept 2008
  • Euro hits 2-week lows amid worries about euro zone growth
  • Sterling on track for steepest weekly drop in 10 weeks
  • Commodity sensitive currencies broadly lower
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The U.S. dollar rose to a two-week high against a basket of currencies on Friday on rising U.S. yields, while sterling fell in the wake of disappointing economic data and dovish comments from the head of the Bank of England.

The euro fell below $1.23 and is poised for its biggest weekly drop in two months as investors trimmed record high bets before a European Central Bank meeting next week where policymakers are largely expected to signal no change in policy.

Commodity-linked currencies came under pressure thanks to a drop in Chinese stocks, with the Australian and New Zealand dollars hitting their lowest in at least two weeks.

“Higher U.S. yields have contributed to the rise in the dollar,” said Chuck Tomes, senior investment analyst at Manulife Asset Management.

U.S. two-year Treasury yields reached 2.453 percent on Friday, its highest since September 2008, on hawkish comments from some Federal Reserve officials this week. Longer-dated yields climbed as rising commodity prices bolstered bets on higher U.S. inflation.

Meanwhile, this week’s disappointing economic data out of Canada, Britain and Europe reduced traders’ long bets on those countries’ currencies and renewed the appeal of the greenback, Tomes said.

The dollar’s overall prospect remains cloudy due to expectations of United States’ growing trade and budget deficits.

“Long-term in 12 to 18 months, the dollar will continue to move in a weaker fashion,” Tomes said.

At 10:04 a.m. (1404 GMT), an index that tracks the greenback versus a basket of six currencies rose 0.5 percent, to 90.39 after touching a near two-week high.

The euro hit $1.2264, the lowest in about two weeks. It was down 0.61 percent, at $1.2269, putting it on track for it steeply weekly drop in two months.

Long euro bets are the biggest consensus trade in the foreign exchange market, with net positions holding near a record high despite PMIs recording a sizeable drop in March and mixed inflation data.

The European Central Bank meets next week and expectations have grown that policymakers may take another small step in exiting its ultra-easy monetary policy after dropping a long-standing pledge to increase its bond buying if needed at its last meeting in March.

Sterling shed 0.4 percent to $1.4030, leading to a weekly loss of 1.4 percent which would be its biggest in 10 weeks.

Sterling has fallen on weaker-than-expected inflation and retail sales data and comments from Bank of England Governor Mark Carney on Thursday, which traders interpreted as BOE being less committed to raising rates in May due to recent “mixed” data.