The yen changed hands at 113.24 on the dollar, remaining under pressure in Asia after earlier sliding to three-week lows at 113.32. The dollar had gained 0.6 percent on the yen the previous day.
The U.S. 10-year treasury bond yields rose for the third consecutive trading session on Wednesday and were last at 3.13 percent. The 10-year Japanese government bond yield was 0.12 percent, highlighting the wide gap in favor of the dollar.
The dollar index, a gauge of its value versus six major peers, climbed to a fresh 16-month high to hit 97.06.
The U.S. currency benefited from stronger than expected U.S. economic data as well as deteriorating fundamentals for the euro, which makes up around 58 percent of the index.
• In contrast, economic data out of Europe disappointed analysts as the euro zone economy grew less than expected in the third quarter.
The euro changed hands at $1.1343, steady from its New York close, though it has lost 2.3 percent versus the greenback in October.
Political uncertainty in Germany, following chancellor Angela Merkel’s decision to step down in 2021, is also pressuring the single currency. Moreover, the stand-off between Rome and Brussels over Italy’s free spending budget, which is in breach of the European Union’s fiscal rules, has weighed on the euro.
Philip Wee, currency strategist at DBS, said in a note to clients that the gloomy backdrop might push the euro down to $1.12 in the current quarter, and is tipping an even lower $1.05-1.10 range in the first half of 2019.
The sterling held close to its mid-August lows, hovering at $1.2705, after credit ratings agency Standard & Poor’s said a ‘no-deal’ Brexit would be likely to tip Britain into a recession on Tuesday.
The yuan was relatively flat in onshore trading at 6.9663, though it remains on a downward path after it fell to its lowest level in a decade this week.
With no sign of a let-up in the Sino-U.S. trade war, investors are betting on more weakness ahead and expect authorities will eventually allow the yuan to breach the key 7 to the dollar level for the first time since the global financial crisis.
• The yuan has been pressured by worries about slowing Chinese economic growth and a potential sharp escalation in the U.S.-China trade war. Data on Wednesday showed China’s manufacturing sector expanded at its weakest pace in more than two years in October, and showed a deepening slump in export orders.
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• EUR/USD: Teasing a bearish close below the 50-month SMA
The bears may feel emboldened if the pair ends today below the 50-month SMA of 1.1396.
The sentiment is quite bearish as the EUR posted losses yesterday, despite strong German inflation.
The focus is on the Eurozone inflation numbers and the US employment cost index, scheduled for release at 10:00 GMT and 12:30 GMT, respectively.
The pair is more likely to suffer a bearish close today. The bearish case may strengthen further if the US employment cost index beats estimates, signaling a pick-up in wage-price inflation. An above-forecast Eurozone CPI may offer some relief, however, the for the EUR to find bids, the US employment cost index needs to miss estimates by a big margin.
• Former Federal Reserve Chair Janet Yellen said Tuesday that more interest rate hikes are needed in order to avoid the economy running too hot.
"At this point, a couple more interest rate increases are necessary to stabilize growth at a sustainable pace and stabilize the labor market so it doesn't overheat," Yellen told CNBC's Steve Liesman at the Charles Schwab Impact conference in Washington, D.C.
Yellen also said she sees the fed funds rate averaging about 3 percent over the next 10 years. In order to get there, the Fed would have to hike three more times.
• If the U.S. exits the Intermediate-Range Nuclear Forces Treaty with Russia, Washington will be free to develop and install weapons on its military bases around Asia.
That's unlikely to sit well with China, who may look to compete with the U.S.
Any reaction from China to U.S. provocation, however, could spill over into India and Pakistan.
• On Tuesday, the Bank of Japan (BoJ) concluded its 2-day October monetary policy review meeting and left the monetary policy settings unadjusted, holding rates at -10bps while maintaining 10yr JGB yield target at 0.00%.
• China reported slower manufacturing growth in October for the second straight month as the country's trade war dispute with the U.S. continues.
Official manufacturing Purchasing Managers' Index (PMI) was 50.2 — lower than the 50.6 that analysts expected in a Reuters poll. The official manufacturing PMI was 50.8 in September.
Growth in China’s services industry cooled in October, an official survey showed, a sign activity is slowing in a key part of the world’s second largest economy.
The official non-manufacturing Purchasing Managers’ Index (PMI) released on Wednesday fell to 53.9 from 54.9 in September, but still well above the 50-point mark that separates growth from contraction.
• China’s manufacturing sector in October expanded at its weakest pace in over two years, hurt by slowing domestic and external demand, in a sign of deepening cracks in the economy from an intensifying trade war with the United States.
Anxiety about China’s cooling growth and its likely drag on the global economy have vexed financial markets recently, and Wednesday’s official Purchasing Managers’ Index (PMI) indicates more stress for investors through coming months.
The official PMI - which gives global investors their first look at business conditions in China at the start of the last quarter of the year - fell to 50.2 in October, the lowest since July 2016 and down from 50.8 in September.
• South Korea’s spy agency has observed preparations by North Korea for international inspections at several of its nuclear and missile test sites, the Yonhap news agency said on Wednesday, citing a South Korean lawmaker
• Oil prices climbed for the first time in three days on Wednesday, but rising supply and fears over the outlook for demand amid the U.S.-China trade war kept pressure on the market.
Brent crude futures had gained 49 cents, or 0.7 percent, to $76.40 a barrel by 0619 GMT. They fell 1.8 percent on Tuesday, at one point touching their lowest since Aug. 24 at$75.09 a barrel.
U.S. West Texas Intermediate (WTI) crude futures advanced 28 cents, or 0.4 percent, to $66.46 a barrel on Wednesday. They dropped 1.3 percent the day before, after hitting their lowest since Aug.17 at $65.33 a barrel.
Reference: Reuters, CNBC
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