Dollar underpinned by higher yields; yen dips

LONDON - The dollar held steady on Wednesday after touching two-month peaks against the yen in holiday-thinned trade, underpinned by firm U.S. housing data and higher U.S. bond yields.

By (Reuters)

Published: Wed 23 Dec 2009, 6:35 PM

Last updated: Thu 2 Apr 2015, 8:29 AM

“The dollar continues to capitalise on stronger U.S. data, which is likely to extend a bit further in a last pre-Christmas dash,” said Daragh Maher, deputy head of FX strategy at Calyon.

Traders expect U.S. personal spending and new home sales data due out later in the day to underscore optimism about the U.S. economy after data on Tuesday showed a sharp 7.4 percent increase in November existing homes sales.

Trading was extremely thin as Tokyo markets were closed for a national holiday and as many market players elsewhere had already wound down for the Christmas holidays and year-end.

Growing optimism on the U.S. economy has pushed the Treasury yield curve to record steep levels and long-dated yields to four-month highs.

That has especially helped the dollar against the yen, where there has traditionally been a strong correlation with the spread between U.S. and Japanese government bond yields.

By 1153 GMT, the dollar was hovering near 91.87 yen, its highest since late October.

Traders said the dollar’s upside was hindered so far by Japanese exporter offers near 92.00/30 yen.

The dollar index was up 0.1 percent on the day at 78.258, near a 3-1/2 month peak of 78.449 hit the previous day.

The euro was flat at $1.4250 after falling to a 3-1/2 month low of $1.4216 on Tuesday following a third rating agency’s credit downgrade of Greece.

Traders were eyeing the 200-day moving average at $1.4194, a break of which could see it retreat to the $1.4000/1.4044 area.

Sterling falls

Sterling briefly extended losses after minutes from the Bank of England’s December policy meeting showed all nine members of the Monetary Policy Committee voted to keep interest rates at a record low of 0.5 percent and maintain the 200 billion pound asset buying programme in December, as expected.

“The minutes confirm that the committee is in wait and see mode until February, but don’t close the door entirely on further policy action of some sort,” said Jonathan Loynes, economist at Capital Economics.

The pound was down 0.1 percent on the day at $1.5953, after falling as low as $1.5924, one tick from Tuesday’s trough which was the weakest since mid-October.

The pound slipped below $1.60 for the first time in two months on Tuesday on a disappointing revision to UK third quarter growth figures.

The Swiss franc rose against the euro to 1.4912, near Friday’s highs and moving further away from the previous day’s levels near 1.50 francs.

Extremely thin liquidity exacerbated the moves, traders said, but they remained wary of possible SNB action to curb the Swiss franc’s strength.

The New Zealand dollar slid to a three-month low of $0.6974 after data showed the economy grew a meagre 0.2 percent in the third quarter. It was last at $0.7005, down 0.2 percent on the day.

Unlike others, the Canadian dollar extended gains against the U.S. unit, rising to a two-week high of C$1.0524.

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