US dollar rises to a two-week peak, tracking Treasury yields. Due to higher U.S. Treasury rates on Wednesday, the U.S. dollar rose to a two-week high as investors questioned the market’s assumption of six interest rate cuts in 2024.

With Japanese markets closed for a holiday and investors anticipating major U.S. data announcements later in the day, including minutes from the Federal Reserve’s December meeting, trading was quiet.

Meanwhile, bitcoin fell more than 5% on Wednesday after reaching more than $45,000 on Tuesday, its highest level since April 2022. Nonetheless, confidence in Bitcoin has remained strong as a new exchange-traded fund for the world’s largest cryptocurrency is expected to be approved this week.

On the other hand, the dollar has risen in lockstep with Treasury rates, which are above 4% for the first time in two years. The 10-year yield was recently up 5.7 basis points (bps) at 4.0008%, while the dollar index advanced 0.3% to 102.59, having previously reached a two-week high of 102.61.

“Markets are suffering a brutal hangover to kick off the year, with Treasuries unwinding some of December’s euphoric moves and the dollar steamrolling its rate-sensitive rivals,” said Karl Schamotta, chief market analyst at Corpay in Toronto.

“To some extent, this is positioning-driven mean reversion: investors drank a little too much liquidity last month, and the consequences are now arriving.” On the other hand, the dollar fell off its highs as statistics revealed that the U.S. manufacturing sector dropped more in December, albeit at a slower rate.

On Wednesday, the Institute for Supply Management (ISM) said that its manufacturing PMI climbed to 47.4 in February after remaining constant at 46.7 for two months. The PMI remained below 50 for the 14th month, indicating a manufacturing decline. This is the longest such span, from August 2000 to January 2002.

At the same time, job vacancies in the United States declined for the third month in November. Job vacancies, a measure of labor demand, fell from 62,000 to 8.790 million on November 30th, according to the Labor Department’s monthly Job Vacancies and Labor Turnover Survey, or JOLTS, a report released on Wednesday.

Regarding other currencies, the euro was recently down 0.3% against the U.S. dollar, trading at $1.0906. It had fallen to $1.09050, its lowest level since mid-December, and had plummeted 0.95% on Tuesday, its worst daily decrease since July.

A reduction in inflation and a dovish tone at the Federal Reserve’s December policy meeting bolstered betting on rate cuts in the United States in 2024, hurting the greenback and igniting a surge in Treasury bonds and stocks in November and December. Last Monday, the dollar index fell to a five-month low of 100.61.

Those tendencies did not continue into the New Year, with the S&P 500 and Nasdaq Composite finishing down on the first trading session in 2024, pulled down by significant technology names. Treasury rates rose as prices fell, making U.S. debt more appealing and sending the currency higher on Tuesday.

The U.S. dollar was recently up 1.2% versus the Japanese yen, trading at 143.69, adding to the previous day’s 0.82% gain.

Investors will be looking for clues about how many rate cuts the Fed will make this year in the minutes from its December meeting, which are expected at 1900 GMT (2 p.m. E.T.).

“Contradictions underlying the rally are also exposed.” With at least six rate cuts priced in against a still-resilient economic backdrop, the consensus bearish-dollar bet is becoming increasingly difficult to envisage playing out this year,” said Corpay’s Schamotta.

“If the U.S. economy continues to outperform against expectations, yields should push higher, equity valuations could fall, and the greenback should climb.”

The pound was recently trading at $1.2620. It fell 0.87% in the previous session, the most in over three months.

Following the death of Hamas deputy commander Saleh al-Arouri in a drone attack in Lebanon’s capital, Beirut, on Tuesday, analysts claimed that concerns over rising geopolitical tensions also contributed to the risk-off sentiment. Security sources in Lebanon and Palestine blamed his killing on Israel, which has neither acknowledged nor disputed his culpability.