Dollar reverses as U.S. Treasury yields climb
LONDON (July 24) The U.S. dollar rose against key rivals on Tuesday, climbing back after two straight days in the red, as rising U.S. Treasury yields served as support for the greenback.
The ICE dollar index /quotes/zigman/1652083 DXY +0.07% , which measures the greenback against six other major currencies, rose to 82.34, down from 82.235 late Monday in North American trade.
The euro /quotes/zigman/4867933/sampled EURUSD -0.02% exchanged hands at $1.3173 from $1.3185, but had reached an intraday high of $1.3207, according to FactSet data. The euro hadn’t traded above the $1.32 since June 19.
“We [are] very much in a flow-driven market at the moment, so data is light along with volumes. On the price action, euro-dollar met with sellers above the $1.32 level and this has been the dominant factor behind the dollar up-move seen during the European session,” said Simon Smith, head of research at FxPro in London.
“The rise in U.S. 10-year yields /quotes/zigman/4868283/delayed 10_YEAR +1.29% back above the 2.50% level during European trade has also served to add to the firmer dollar tone, especially with peripheral bond yields holding relatively steady,” he added.
The yield on 10-year U.S. government bonds picked up 3 basis points to 2.513%, matching a rise seen in Germany, Smith explained.
Housing data
As the Fed tracks the housing market as part of its assessment on when to slow the pace of its stimulus efforts, the National Association of Realtors on Monday said June home sales fell 1.2% to an annual rate of 5.08 million, from a downwardly revised 5.14 million. Economists polled by MarketWatch had expected a 5.28 million rate after the NAR initially reported 5.18 million in May.
The report raised concerns that a recent climb in mortgage rates will hurt overall housing sales.
While the 5.08 million figure is the second-highest rate since November 2009, the weaker-than-expected home-sales report came after Federal Reserve Chairman Ben Bernanke last week said it was too early to determine whether the central bank will taper asset purchases at its meeting in September.
The central bank currently purchases $85 billion a month in government and U.S. mortgage debt.
Monetary stimulus has been seen as putting pressure on the dollar’s value, and the latest suggestion by Bernanke that it may last longer than anticipated has hurt the dollar in recent sessions.
Meanwhile, an election victory over the weekend by Japan’s Liberal Democratic Party “did not deliver the sharp move higher in [the dollar-yen rate] that many were looking for,” Crédit Agricole head of Asia global markets research Mitul Kotecha wrote to clients.
The dollar /quotes/zigman/4868099/sampled USDJPY +0.32% rose on Tuesday against the Japanese yen, buying ¥99.92 compared with late Monday’s ¥99.60.
The market in the near term will look for Japanese Prime Minister Shinzo Abe to make concrete announcements about his reform plans, but until then, the dollar “may struggle to sustain a move above 100 [yen],” Kotecha said.
