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
"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
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.