* Dollar gains on news that Obama to choose Yellen for top
* Dollar index rises, inches away from 8-month low
* Gains could be fleeting as no resolution yet to budget
* Minutes of Fed's Sept policy meeting next in focus
By Anooja Debnath
LONDON, Oct 9 The dollar rose on Wednesday on
market relief that President Barack Obama has tapped Federal
Reserve Vice Chairwoman Janet Yellen to head the U.S. central
bank, lending some certainty while the budget impasse ensues.
Although Yellen is known for her dovish stance, which should
ideally be dollar-negative, strategists said the decision
fuelled risk sentiment and helped the dollar gain, especially
against safe-haven currencies like the yen and the 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.
The dollar index erased early losses thanks to
the weaker yen, and was up about 0.5 percent at 80.245, edging
away from the 79.627 trough hit last Thursday, a low not seen
since early February.
Against the yen, the dollar rose about 0.5 percent on the
day to 97.30 yen, moving away from a two-month low of
96.55 touched on Tuesday. The dollar was up 0.5 percent against
the Swiss franc at 0.9084 francs.
The euro was down 0.3 percent at $1.3527.
"In the past when Yellen's nomination got more likely, we
saw dollar weakness and suddenly we are seeing dollar strength,"
said Ulrich Leuchtmann, head of FX research at Commerzbank.
"My interpretation is that we are at the moment in the phase
where we might get into very deep trouble with the U.S. budget
crisis and if that is the case, it would be good to have a Fed
which would be very reactive and this is good for the dollar."
Ayako Sera, market economist at Sumitomo Mitsui Trust Bank
shared a similar view. "It might be counterintuitive that the
dollar rose on news that a dove is likely to be the next head of
the Fed, but the news itself removed some of the uncertainty,
and therefore contributed to risk-on sentiment."
Strategists were, however, sceptical that the risk-on mood
would last long, in light of the stand-off in Washington where
Obama said he would be willing to negotiate on budget issues
only after House Republicans agree to reopen the federal
government and raise the debt limit with no conditions.
Concerns are rising that a resolution might not be reached
by the Oct. 17 deadline when Congress must decide whether to
raise the government's borrowing limit or the U.S. faces a debt
"I wouldn't expect this rally in risk to be too sustainable
given much bigger issues at play including the U.S. government
shutdown. The Oct. 17 initial deadline looms large as well,"
said Sue Trinh, senior currency strategist at RBC in Hong Kong.
The uncertainty is likely to leave investors reluctant to
take on big positions, and keep currencies in tight ranges.
While there is no sense of panic in financial markets yet,
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.
The current budget impasse and growing danger of the U.S.
economy slipping back into recession appeared to validate the
Fed's decision to remain cautious and probably even delay its
plans to trim its stimulus which is dollar negative.
Investors will also be keeping an eye on minutes of the
Federal Reserve's September meeting, when the central bank
caught markets off guard by maintaining its bond-buying stimulus
programme. The minutes are due out at 1800 GMT.