NEW YORK (TheStreet) -- The U.S. dollar headed higher amid a rise in tensions on the Korean Peninsula but more importantly a surge in U.S. bond yields with the 10-year increasing by 7 basis points Wednesday.
The euro tested levels under $1.320 but sovereign support, coupled with better-than-expected German industrial production, underpinned recovery. Sterling traded at session highs after U.K. CBI manufacturing orders beat expectations in December. The index hit the highest levels since June 2008, which stoked U.K. recovery hopes and lifted the currency to $1.580 highs while EUR/GBP traded into the 0.842 area.
USD/JPY continues to rise amid increased macro interest, with the two- and 10-year yield spread largely favoring long USD versus the yen, which is especially sensitive to the interest rate spread as the markets digest the news of the U.S. tax cuts.
Elsewhere, ahead of the Reserve Bank of New Zealand central bank announcement, the kiwi is the worst performer against the dollar, falling back the NZ$0.750 area after topping out at NZ$0.757.
Eurozone spreads have relaxed a bit following the passage of the Irish budget with the Irish 10-year down 5 basis points followed by a 1 basis point drop in Portugal's 10-year borrowing costs. At the same time, German two-year notes declined, sending the yield 9 basis points higher, after investors bid for less than the full amount of securities offered. More specifically, this is the third auction in a row that was technically uncovered for Germany.
Spain's 10-year yield was up 4 basis points with Italy's yield up 3 basis points. Yet the key driver for recent dollar strength has been the surge in U.S. Treasury yields, which have increased 23 basis points at the 10-year tenor, 13 basis points at the 30-year and 5 basis points at the two-year, over the past five days.
