* U.S. consumer confidence hits more than five-year high
* Dollar, euro both rally more than 1 percent vs yen
* Prospect of negative rates continues to undermine euro
By Gertrude Chavez-Dreyfuss
NEW YORK, May 28 The dollar rebounded against
the euro and yen on Tuesday after robust U.S. economic data
reinforced expectations the Federal Reserve may start unwinding
its stimulus program over the next few months.
Wall Street posted sharp gains, while benchmark U.S.
10-year Treasury yields rose to their highest in
more than a year after the data, suggesting the world's largest
economy was on a steady road to recovery. Higher Treasury yields
have also boosted the appeal of dollar-denominated investments.
Gains in these assets were triggered by a U.S. consumer
confidence index which increased in May to its highest in more
than five years. That private-sector report on Tuesday followed
data showing single-family home prices rose in March, racking up
their best annual gain in nearly seven years.
"Stronger-than-expected U.S. data brought the Fed a step
closer to cutting back on stimulus as soon as the next few
policy meetings," said Joe Manimbo, senior market analyst, at
Western Union Business Solutions in Washington.
The Fed's stimulus program is viewed as negative for the
greenback because it involves flooding the market with dollars.
In late afternoon trading, the dollar fell 0.6 percent to
$1.2859, having hit a session low of $1.2851 after the
Sean Cotton, vice president and foreign exchange advisor at
Bank of the West in San Ramon, California, said prospects of
negative interest rates "remain the new albatross around the
neck of the region."
European Central Bank Governing Council member Christian
Noyer said in a Bloomberg TV interview on Tuesday that negative
interest rates will have different results across the smaller
countries, but he added that the bank should be prepared to
implement them if necessary.
"As the ECB continues to push into uncharted territory, the
policy outlook is likely to produce further declines in
euro/dollar," Cotton said.
Also on Tuesday, European Central Bank Executive Board
member Peter Praet said the bank could still cut interest rates
further if needed, a day after ECB Executive Board member Joerg
Asmussen said the loose policy would stay as long as necessary.
Against the yen, the dollar rose 1.3 percent to 102.27 yen
after hitting a session high of 102.50, rebounding from a
two-week low of 100.68 set on Friday. The dollar rose to a
4-1/2-year high of 103.73 yen last Wednesday.
The yen tumbled broadly as global equity markets rallied on
supportive comments from central bankers, encouraging investment
in riskier, higher-yielding trades funded by cheap borrowing in
the Japanese currency.
Japan's Nikkei stock average ended 1.2 percent
higher, while European and U.S. shares rallied, reversing sharp
losses seen last week after Fed Chairman Ben Bernanke ignited
expectations the U.S. central bank may scale back its stimulus.
Bank of Japan board member Ryuzo Miyao said on Tuesday it
was vital to keep long- and short-term interest rates stable.
Strategists said markets were positioned for yen weakness on
expectations of aggressive monetary easing by the Bank of Japan.
They said the yen's reluctance to gain further in the face of
equity selloffs late last week suggests its weakening trend
"Perhaps the most interesting aspect of the price action is
the degree to which dollar/yen is holding up despite significant
position reduction into the long weekend," said Jens Nordvig,
global head of FX strategy at Nomura Securities.
"We are just 1.5 percent away from the highs in dollar/yen,
even if the Nikkei is more than 10 percent off the highs. We are
sticking with our long dollar/yen position with a stop at
The euro rose 0.8 percent to 131.54 yen, pulling
away from Thursday's trough of 129.94 yen.
The safe-haven Swiss franc fell, with the dollar up 1.3
percent at 0.9755 franc and the euro up 0.7 percent at
Currencies such as the yen and the Swiss franc, which rose
sharply last week after a recent selloff in stock markets,
typically gain in times of financial uncertainty.
The dollar index, which measures the greenback versus a
basket of currencies, rose 0.7 percent to 84.252.
The higher-yielding Australian and New Zealand dollars
failed to benefit from the broad rally in equity and commodity
The Australian dollar was last at US$0.9629, little
changed on the day, while the New Zealand currency was
slightly up at US$0.8090. Analysts cited uncertainty about the
outlook for China's economy.