London - The dollar rose to a six-year high against the yen on Wednesday while the Australian dollar nursed a second session of heavy losses as US Treasury yields ground higher.
The US currency's steady march higher since the start of July is broadly intact, driven by a tightening of market expectations on Federal Reserve interest rates.
A study by Fed researchers earlier this week convinced many investors of the need to bring forward expectations for the timing of a first rise in US interest rates.
That was also showing up in weakness for a number of developing world currencies, with India's rupee and Turkey's lira among those suffering.
“There's clearly a bit more dollar strength this morning,” said Peter Kinsella, a strategist with Commerzbank in London.
“...US two-year rates are moving higher, you have the continuing monetary accommodation in Europe and we've had a run of pretty bearish data in Japan.
“I wouldn't be surprised if we saw dollar-yen at 108-109 quite easily.”
Two-year US Treasury yields were within sight of a three-year peak of 0.590 percent set in late July while the 10-year yield popped back above 2.50 percent after testing such levels on Tuesday.
The dollar extended its run to six-year highs against the yen, inching up to 106.66 yen in early European deals.
The dollar index inched up to 84.256 in early European deals but was still below Tuesday's 14-month high of 84.519.
It is within striking distance of its 2013 peak of 84.753, and a break of that level would take it to highs not seen since mid-2010.
The Aussie dollar - one of the main beneficiaries of carry trades where investors borrow cheaply in the dollar to buy other higher-yielding currencies - sank 0.7 percent to $0.9138 .
“Traders could see a further correction lower if we see a daily close south of $0.9175, which is a key support level,” said Stephen Innes, senior trader at OANDA Asia Pacific.
SCOTS CAP
Sterling also got some reprieve despite ongoing worries about Scottish independence.
It added about 0.2 percent to$1.6134, having carved out a fresh 10-month low of $1.6060 on Tuesday.
Britain's three main political parties have gone into campaign overdrive since a poll at the weekend showed Alex Salmond's nationalists gaining the upper hand.
Several recent surveys have shown the September 18 vote as too close to call.
The pound has fallen 3 percent since the first survey showing the sharp move towards the nationalists at the start of last week.
To many that still seems a small move given the risk the vote next week may break up the United Kingdom and lead to two years of procedural uncertainty and bickering.
“Investors will focus on increased risk for a 'yes' vote, implying sustained weakness into the vote,” Citibank analysts said in a morning note to clients. - Reuters