* Dollar rises broadly, yen under pressure
* Fed minutes shows most board members still expect tapering
* Dollar still vulnerable if no resolution found
By Anirban Nag
LONDON, Oct 10 The dollar rose on Thursday,
trading near its highest in two weeks against a basket of
currencies on signs of a break in the stalemate in Washington
that might avert a potential U.S. debt default.
A rise in U.S. 10-year Treasury yields to 2.70
percent from 2.60 percent just a week ago was also helping. The
dollar index was at 80.420, extending its recovery from
an eight-month low of 79.627 hit a week ago.
The U.S. currency received an additional boost after the
minutes of the Federal Reserve's September meeting revealed the
decision not to slow stimulus was a "close call" and that most
board members supported tapering bond-buying later this year.
While the latest fiscal problems are likely to mute those
expectations of tapering, the minutes nonetheless offered
support to the dollar which has been sold off in the past few
"There have been some positive developments regarding the
debt ceiling and while they may be short-term measures, they
offer some relief to the dollar," said Neil Mellor, currency
strategist at Bank of New York Mellon.
"The Fed minutes are also talking about tapering later this
year, all of which is nudging markets to cover positions before
House Republican leaders will visit the White House on
Thursday as the search for a way to break the impasse continues.
Some Republicans and Democrats floated the possibility of a
short-term increase in the debt limit to allow time for broader
negotiations on the budget.
Against the yen, the dollar was up 0.5 percent to
97.82, up from a two-month low of 96.55 yen hit on Tuesday. One
trigger for investor buying was the dollar's success staying
above its 200-day moving average in the past few days. The
average stood at 96.83 on Thursday.
DOLLAR VULNERABLE TO STRESS
Despite signs of rapprochement in Washington, the dollar
could still be vulnerable to concerns about a debt default.
Short-term U.S. government bill yields were at the highest level
since the 2008 financial crisis, reflecting investor anxiety.
"I would not be surprised to see some take profit in the
dollar after the recent run. The situation has not really
changed, and risk fear is mounting and the VIX is still just
below 20 percent," said Francesco Scotto, portfolio manager at
RTFX Fund Management Ltd.
Wall Street's favourite anxiety index, the VIX index
closed on Wednesday at 19.60, after rising to 21.34 at one
point. A level above 20 is generally associated with increasing
concern about the near-term direction of the market.
Banks and money market funds are beginning to shun some
Treasuries normally used as collateral in the $5 trillion
repurchase agreement market.
Many investors are now looking to U.S. Treasury Secretary
Jack Lew's testimony before the Senate Finance Committee later
on Thursday on his latest estimate on the Treasury's funding
positions, as well as possible contingency plans.
Lew has said the Treasury will run out of additional
borrowing authority on Oct. 17.