The US dollar is trading close to the highest levels seen so far this year, enjoying support from rising US Treasury yields even as a risk-off sentiment about the Fed withdrawing monetary stimulus boosts its safe haven status among investors. At the time of writing, the US dollar index DXY is trading at around 93.71.

The surge in US bond yields is weighing heavily on the safe haven currency Japanese yen, sending it to the lowest levels seen in 18 months against the greenback. Meanwhile, the common currency is trading at multi-month lows amid rising expectations for the Fed’s tapering process and sooner than expected plans to begin tightening the monetary policy.

The Fed’s plans shared at the latest policy meeting have driven up bond yields, with the benchmark 10-year US Treasury yields climbing up steadily over the past five sessions. The spike was driven by Fed officials confirming that the US central bank would start tapering its monthly asset purchase program by November and even consider increasing interest rates well before the original plan.

The US dollar’s safe haven appeal received an additional boost as global investors worry about China’s economic recovery slowing down on account of soaring energy prices, raw material shortages and the most recent Evergrande crisis. China was one of the first economies to start rebounding from the coronavirus crisis, posting rapid recovery earlier this year; however, the pace has since slowed down after the country experienced more outbreaks of COVID-19 from the delta variant and also faces challenges due to soaring commodity costs and global supply chain disruptions.

The reserve currency also received greater interest among investors who moved away from US equities over worries about rising bond yields and renewed concerns about inflation overheating as a result. All of the leading stock indexes across the US ended Tuesday in the red and sent investors towards the safety of the dollar instead.