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Dollar Firmer as U.S. 10-Year Bond Yields Near 2-Year High - (Reuters)

Posted by Chris Advincula on Aug 16, 2013 7:20:00 AM

Fri Aug 16, 2013 3:49am EDT


* Dollar supported by rise in U.S. yields

    * Expectations of Fed tapering lead to dollar bids

    * ECB seen as unlikely to move on rates

    * New Zealand dollar recovers from lows after earthquake

 

    By Anirban Nag

    LONDON, Aug 16 (Reuters) - The dollar rose against a basket

of currencies on Friday, drawing support from a rise in U.S.

Treasury yields on expectations that the Federal Reserve may

start withdrawing stimulus next month.

    Ten-year Treasury yields rose to their highest

in two years, while the gap between two-year Treasury yields

 and their Japanese counterpart rose to its

highest in five weeks, Reuters data showed.

    The dollar index rose 0.15 percent to 81.30. The

dollar was up 0.3 percent against the yen at 97.65 yen,

while the euro was slightly lower on the day at $1.3330.

    "Given that the 10-year U.S. yields are headed towards 3

percent we think the general direction is for a stronger

dollar," said Tom Levinson, FX strategist at ING. "The dollar

index has underperformed the rise in yields so there is a fair

bit of catch-up to do."

    The yield on the benchmark 10-year Treasury note

edged up to 2.78 percent in the European session from its U.S.

close of 2.76 percent on Thursday, when it hit a two-year high

of 2.823 percent.

    Later in the day, U.S housing starts for July and the

University of Michigan confidence index could set the tone for

bond markets and to a large extent the dollar, traders said.

     Even though the euro zone is returning to growth, the

European Central Bank looks unlikely to change benchmark

interest rates any time soon. In the United States, good

domestic data has bolstered expectations that monetary policy

may not remain ultra-loose for long.

    On Thursday, upbeat U.S. jobless claims data initially

spurred a rally in the dollar but then disappointing data on

industrial output and manufacturing set the stage for its

reversal.

    "This is a tough market for speculators. It's big on

volatility, but no clear trends," said Masashi Murata, senior

currency strategist at Brown Brothers Harriman in Tokyo.

    "The market seems to have priced in tapering this September,

and that's why U.S. Treasury yields went up to around 2.8

percent, so that should be supporting the dollar/yen," he said.

    More recent data shows that Japanese investors turned to net

buying of foreign debt, much of which was likely to have been

Treasuries.

    New Zealand's dollar skidded after a strong earthquake

struck near the country's capital of Wellington on Friday.

 

    The kiwi dropped as low as $0.8053, from a

two-month peak of $0.8113 minutes before the quake hit. It later

recovered to buy $0.8079, still down 0.1 percent on the day.

 

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