The US dollar is continuing to trade strong into Tuesday, supported by a rise in US Treasury yields which have surged to the highest levels seen in three months. At the time of writing, the US dollar index DXY is trading around 93.51.

Meanwhile, the safe haven currency Japanese yen has weakened to the lowest levels seen in almost three months against the greenback as a result of the rising US bond yields. Bond yields have been on the rise not only in the US but also in Germany, and are expected to strengthen across other nations whose central banks are slowly reversing their dovish stance as economic recoveries gather pace around the world.

The spike in US Treasury yields was triggered by the Fed’s shift in outlook during last week’s policy meeting when it confirmed that it would start tapering asset purchases from November. In addition, Fed policymakers also expressed interest in hiking interest rates sooner than anticipated, with some forecasting a rate hike as soon as 2022.

A similar hawkish mood was reflected in the latest policy meetings at the BOE and the Norges Bank as well. While these respective currencies have been trading stronger in recent sessions, the Euro has come under pressure, and is trading at the $1.16 mark against the US dollar as the ECB is yet to sound as hawkish.

The commodity currency AUD has shown a slight weakness on Tuesday but continues to hold on to some gains from the previous session. The risk-sensitive currency has strengthened as concerns about Evergrande defaulting on its debt recede while iron ore – a key export out of Australia, continues to gain in commodity markets.