FOREX-Dollar rally pauses as Treasury yields retreat

* Dollar flat, Treasury yields back down from 6-mth high

* Analysts: Dollar lagging move in Treasury yields

* Market awaits 30-yr auction, U.S. jobless claims

(Releads, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Dec 9 (BestGrowthStock) – The dollar’s rally paused on
Thursday as U.S. Treasury yields retreated from a dramatic
climb, prompting investors to book profits on gains in the

A slide in the benchmark 10-year U.S. Treasury yield from a
six-month high hit on Wednesday quelled demand for the dollar,
while moves in major currencies were subdued given a dearth of
major economic data or events.

Analysts said currencies would be sensitive to U.S. yields
in the short term, but added that dollar moves have been limited
during the hefty sell-off in Treasuries this week after an
extension of U.S. tax cuts fuelled fears of inflation and
deteriorating U.S. fiscal health. [US/]

“We’ve seen a corrective move in U.S. Treasuries, whereas at
the moment, we don’t see a need for such a corrective move in
the dollar,” said Antje Praefcke, currency analyst at
Commerzbank in Frankfurt.

She said investors were wary of taking on big positions as
liquidity dries up towards year end. This may explain why the
dollar index (Read more about the global trade. ) has risen only 0.7 percent this week as the 10-year
U.S. Treasury yield has soared roughly 30 basis points.

While the tax cuts have raised the issue of U.S. fiscal
problems, analysts say they could help to boost the economy,
which would be supportive of the dollar.

Graphic on U.S. tax cuts, stimulus and deficits

For story on tax deal impact on stocks see [ID:nN08175057]

Others in the market said the jump in Treasury yields was
overdone and that there was limited room for a further rise.

Still, the U.S. bond market may be vulnerable to more
selling if a 30-year U.S. Treasury auction later in the day
attracts only limited demand. A 10-year auction on Wednesday saw
average demand.

The dollar index (Read more about the global trade. ) (.DXY: ), which tracks the dollar’s moves
against a currency basket, was up a shade at 80.028, hovering
near its 100-day moving average at 79.953.

Technical analysts say a sustained break above that level is
needed to add significantly to the dollar’s upside.

The 10-year U.S. Treasury yield (US10YT=RR: ) was at 3.239
percent, pulling back from around 3.329 hit on Wednesday.

The euro (EUR=: ) was up a touch on the day at $1.3270.

Traders say concerns over euro zone countries’ debt
financing — while put on a back burner after euro zone bond
yields fell on European Central Bank buying — could resurface
at any time to hurt the euro.

The dollar (JPY=: ) slipped 0.2 percent to 83.80 yen.

The Australian dollar (AUD=D4: ) rose 0.8 percent to $0.9860,
boosted by data showing the country’s employment is growing far
faster than expected, fuelling speculation interest rates may
not stay on hold for long. [ID:nL3E6N81XU]


Rising Treasury yields can help to increase the rate
differential between U.S. assets and those of other currencies,
which is often supportive for the dollar.

Credit Agricole analysts say dollar movements against the
Australian dollar, the euro and the yen have been most sensitive
to relative differentials in two-year yields, while the
correlation with 10-year bond differentials has been less
significant in the past three months.

In a note, Citi analysts said the dollar’s rise has been
lagging the surge in Treasury yields as recent U.S. data,
including a below forecast employment report last week,
suggested the economy was underperforming.

“The divergence between the reaction in the U.S. bond market
and the USD will depend of the performance of the U.S. economy
in the very near term,” they said, adding that yields could fall
in the absence of more evidence the U.S. economy is improving.

Traders also say weekly U.S. initial jobless claims data at
1330 GMT could trigger a rise in bond yields. The data last week
showed the four-week moving average of the claims at a two-year
low, stoking optimism about the U.S. recovery.

(Additional reporting by Tokyo forex team)

FOREX-Dollar rally pauses as Treasury yields retreat