U.S. dollar hits strongest level in nearly a year, heaping more pressure on stocks

The ICE index measures the dollar’s strength against a basket of rivals including the Japanese yen, euro
EURUSD,
-0.13%
and British pound, but it’s most heavily weighted toward the euro, which just broke below $1.05 to trade at its weakest level since December.

The buck also briefly drove the Japanese yen
USDJPY,
-0.51%
to trade at less than 150 yen to the dollar for the first time since Oct. 21, 2022, according to FactSet data. But the Japanese currency quickly bounced back as traders speculated that the Bank of Japan might intervene to prop up the currency after the yen crossed what’s widely viewed as a critical threshold in the eyes of the central bank.

See: Japanese yen sees wild swing amid intervention fears after falling to nearly 1-year low versus dollar

To be sure, rising Treasury yields and expectations that the Federal Reserve could keep interest rates higher for longer have been helping to drag the greenback higher since July, reversing a slump from the first half of the year.

Last year, the buck embarked on a historic rally that ultimately peaked in late September with the dollar index at its highest level in two decades. At the same time, U.S. stocks endured their worst calendar-year performance since 2008, while global bond markets suffered one of the biggest routs in modern history.

That selling pain in bonds has continued in 2023. On Tuesday, Treasury yields climbed to their highest levels in 16 years, putting more upward pressure on the buck. In particular, traders were paying close attention to the yield on the 30-year Treasury bond
BX: TMUBMUSD30Y,
which was up 12.4 basis points in recent trade at 4.899%, its highest level since late 2007, FactSet data show.

Analysts blamed data on job openings, the so-called JOLTS data, for contributing to Tuesday’s chaotic trading environment.

JOLTS data, which offers a glimpse into the number of job openings in the U.S. labor market, have occasionally triggered selling in stocks and other wild moves across markets this year.

Data released Tuesday showed job openings snapped back in August and rose to 9.6 million, up from a revised 8.9 million during the month prior, reflecting a robust appetite for labor in light of a steadily growing U.S. economy.

Investors interpreted these data as a sign that the Federal Reserve would likely press ahead with its plans to keep interest rates above 5% for longer than investors had previously expected, as was reflected in the latest Fed “dot plot” of officials’ interest-rate projections released last month.

Treasury yields and the U.S. dollar climbed in response, while the data triggered another bruising selloff in stocks. The S&P 500
SPX
was off 1.4% in recent trade at 4,230, its lowest level intraday since June 1, according to FactSet.

The data also boosted the odds that the Fed will hike interest rates at least once more before the end of 2023, as officials outlined in their September projections.

“Hotter than expected job opening data today is not good news to stocks or bonds today. The market wants to see this number come down but now the odds of a rate hike has increased,” said Gina Bolvin, president of Bolvin Wealth Management Group, in emailed commentary shared with MarketWatch.

Traders will digest a smattering of U.S. labor-market data in the coming days, with Friday’s monthly nonfarm payrolls report as the marquee event for the week. Any signs that the labor market has started to slow could help push yields and the dollar lower, while a stronger-than-expected report would likely have the opposite effect, analysts said.