SF: Dollar Weakens as Treasury Yields Retreat From Six-Month High
Dec. 9 (Bloomberg) -- The dollar fell against 15 of its 16 major counterparts as U.S. Treasury yields dropped from their highest in six months, tempering demand for the greenback.
The U.S. currency weakened before Federal Reserve policy makers meet on Dec. 14 to discuss a potential plan to extend Treasury purchases to support the economy. U.S. President Barack Obama this week agreed to extend tax reductions to boost growth, a measure which may widen the $1.3 trillion budget deficit. The Australian dollar climbed as data showed employers in the nation added more than twice as many jobs as economists had estimated.
"The theme for the dollar is really what's happening in the U.S. Treasury market; dollars go higher when rates go higher," said Jane Foley, a London-based senior currency strategist at Rabobank International. As well, "compared with Europe, there hasn't been any progress made in cutting the U.S. deficit, and that could also be a negative dollar factor."
The U.S. currency fell 0.2 percent to $1.3288 per euro at 8:30 a.m. in London from $1.3262 yesterday. The dollar slid 0.3 percent to 83.83 yen from 84.04 yen. The yen was little changed at 111.39 per euro.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, dropped 0.2 percent to 79.816.
Treasury 10-year yields fell 0.03 percentage point to 3.25 percent today. They rose to 3.33 percent yesterday, the highest since June, after Obama this week extended former President George W. Bush's tax reductions for two years and also agreed to a payroll-tax cut.
Fed's Outlook
The purchase of more U.S. government bonds than planned is "certainly possible," Fed Chairman Ben S. Bernanke said in an interview broadcast Dec. 5 on CBS Corp.'s "60 Minutes" program. "It depends on the efficacy of the program" and the outlook for inflation and the economy, Bernanke said.
The premium offered by 10-year government bonds in the U.S. over Japan narrowed to 1.97 percentage points today after widening to about 2.04 points yesterday, the most since June, data compiled by Bloomberg show.
The dollar has fallen 1.4 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9.1 percent. The yen is up 11 percent.
Australia's Jobs
Australia's dollar gained 0.8 percent to 98.72 U.S. cents from 97.96 cents. The so-called Aussie advanced to 82.75 yen from 82.32 yen.
The number of people employed in Australia gained 54,600 last month from October, the statistics bureau said in Sydney. That compares with the median forecast for a 20,000 increase in a Bloomberg News survey of economists. The jobless rate fell to 5.2 percent from 5.4 percent a month earlier.
"This is significant data and it supports the Australian dollar," said Robert Rennie, currency-research head in Sydney at Westpac Banking Corp. "The market is more or less fully priced for a hike by September next year, today's data suggests that you probably want to start bringing that forward."
New Zealand's dollar fell against Australia's after the smaller country's central bank said borrowing costs will likely rise "to a more limited extent" than earlier indicated over the next two years. Governor Alan Bollard left the key rate at 3 percent today.
New Zealand's dollar fell 0.7 percent to NZ$1.3193 per Aussie dollar. The kiwi was at 74.94 U.S. cents from 74.75 cents.
--With assistance from Candice Zachariahs in Mumbai and Monami Yui in Tokyo. Editors: Keith Campbell, Mark McCord.
