FOREX-Dollar rises from eight-month low after Yellen news

Wed Oct 9, 2013 11:54am EDT

Related Topics

* Obama to choose Yellen for top Fed job

* Focus remains on budget deadlock in Washington

* Minutes of Fed's Sept policy meeting due at 2 p.m. (1800 GMT

By Wanfeng Zhou

NEW YORK, Oct 9 (Reuters) - The dollar rose on Wednesday from an eight-month low against major currencies as news that Federal Reserve Vice Chair Janet Yellen will be nominated as the next chief of the U.S. central bank removed some uncertainty in markets.

Yellen is seen as a dove, which will boost expectations that the Fed will continue its asset-buying program, seen as dollar negative. However, the news brought some relief to investors who have been on edge because of the budget deadlock in Washington.

President Barack Obama said he would not hold talks on ways to end the fiscal impasse while under threat from conservative Republicans but agreed to discuss anything, including his healthcare plan, if they restore government funding and raise the debt limit.

Hopes that lawmakers will eventually reach an agreement also helped the dollar, analysts said. Congress must come up with a deal by Oct. 17, when Treasury Secretary Jack Lew has said the government will run out of money to pay its bills.

"What the market is trying to do is look through the rhetoric and it appears that both sides behind closed doors might be coming up with some kind of a face-saving deal. That's another reason why the dollar is rallying," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.

The dollar index, which measures the greenback versus a basket of six currencies, rose 0.4 percent to 80.378, edging away from the 79.627 trough hit last Thursday, a low not seen since early February.

The euro fell 0.4 percent to $1.3517. Against the yen, the dollar rose 0.3 percent to 97.19 yen, moving away from a two-month low of 96.55 touched on Tuesday.

Jane Foley, senior currency strategist at Rabobank, said markets were wary that an eleventh-hour deal could drive the dollar higher, so no-one wanted to be too short the currency.

"The Yellen news has cleared the air a bit. I think it is also just people not wanting to be on the wrong side of any dollar rally," Foley said. "There are expectations that as soon as there is a deal in Washington there will be a relief rally in the dollar so people don't want to be too short of the dollar."

The current budget impasse and its effect on the economy appeared to validate the Fed's decision to remain cautious and probably even delay plans to trim its stimulus.

Later in the day, the Fed will release minutes from its policy meeting last month, when it shocked markets by deciding not to begin reducing its $85 billion a month bond-purchase program.

Signs of unease have started to emerge, such as investors' waning appetite for U.S. Treasury bills, which caused yields to rise to five-year highs. Some markets players said this could have lent the dollar marginal support.

News of Yellen's nomination fuelled risk sentiment and pressured traditional safe-haven currencies like the Swiss franc . The dollar rose 0.7 percent to 0.9098 Swiss franc.

Obama will announce his selection of Yellen later on Wednesday. If confirmed by the U.S. Senate, Yellen would replace Ben Bernanke, whose term ends on Jan. 31.

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