* Dollar hits five-year high vs yen then slips back
* Markets reassured by Fed message on interest rates
* Dollar rises vs Swiss franc
* Australian dollar near 3-1/2-year lows
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 19 The dollar rose against most
currencies on Thursday, supported by a rise in U.S. Treasury
yields a day after the Federal Reserve announced it would begin
to gradually wind down its massive bond-buying program from
The dollar had rallied broadly on Wednesday after the Fed
said it would reduce its monthly asset purchases by $10 billion,
bringing them down to $75 billion. A reduction in Fed stimulus
would help lift U.S. bond yields and buoy the currency.
On Thursday, the yield on the benchmark 10-year U.S.
Treasury note rose to 2.93 percent from 2.88 on
But in a move to prevent any sharp market reaction, the Fed
also said it would likely "be appropriate" to keep overnight
rates near zero "well past the time" that the U.S. jobless rate
falls below 6.5 percent - effectively extending the timeline for
beginning to raise base interest rates.
"The biggest reaction after the Fed's decision yesterday was
the rise in rates in the belly of the U.S. curve (five to seven
years)," said Federico Garcia Zamora, director of currency
strategies and senior portfolio manager at Standish Asset
Management in Boston.
Standish oversees assets of about $163 billion.
"The market is not convinced that the Fed can keep interest
rates low for as long as they think. And in that regard, we
think the dollar will continue to appreciate in 2014."
In late trading, the euro fell 0.2 percent against the
dollar to $1.3657, after hitting its lowest in two weeks
Losses in the euro should be limited after the European
Central Bank's rejection of short-term moves to ease monetary
policy and the repayment of loans to the ECB by banks, which has
squeezed the volume of available euros.
Data showing the euro zone current account surplus hit a
record high in October also helped support the euro zone common
Implied volatility in euro/dollar options fell
sharply on Thursday. One-month implied volatility, a
gauge of how sharp a currency move will be, fell to 6.1 percent
from as much as 6.8 percent on Wednesday.
This implies the currency will trade within a range in the
The dollar jumped to a five-year high against the yen
of 104.36 yen, according to Reuters data, before retreating to
104.19, down 0.1 percent on the day.
The greenback slipped against the yen after data showed the
number of Americans filing new claims for unemployment benefits
rose last week to the highest in nearly nine months, casting a
shadow on the labor market.
Other reports showed U.S. home resales at a near one-year
low in November and a slight pick-up in factory activity in the
mid-Atlantic region in December.
Analysts said the actual reduction in the Fed's monthly
asset purchases was minimal - $10 billion - and they remain at a
staggering $75 billion a month in extra dollars that are
coursing through global markets.
The dollar rose 0.5 percent against the Swiss franc to
"The rise in dollar/Swiss franc along with dollar/yen
suggests to me that carry trade funding is moving decisively out
of dollars and into other currencies," said Marshall Gittler,
head of IronFX Global in Limassol, Cyprus.
"Plus the last vestiges of the anti-inflation hedges are
being dismantled, such as gold and silver. I think this marks
the start of the dollar rally that many commentators have been
predicting for 2014."
The Australian dollar, already under pressure because of the
country's central bank's desire to see it weaken, hovered near a
3-1/2-year low in the wake of the Fed's announcement. The Aussie
fell as low as US$0.8820, its lowest since August 2010,
and was last at US$0.8858, down 0.2 percent.