August 22, 2013 / 1:12 AM / 4 years ago

Dollar gains on Fed tapering view, higher yields

NEW YORK (Reuters) - The dollar rose for a second straight session on Thursday, tracking gains in U.S. Treasury yields, as the Federal Reserve’s minutes of its July meeting cemented market expectations that the central bank will reduce its bond-buying program in September.

The greenback trimmed gains, however, after data showed U.S. initial jobless claims rose in the latest week, although they did stay close to a six-year low. The report did not change the market’s view for a tapering of the Fed’s monetary stimulus next month.

“The Fed tapering theme continues. Yesterday’s Fed minutes reinforced expectations that the Fed will taper its quantitative easing program in September and today’s jobless claims didn’t really change that,” said Greg Moore, currency strategist at TD Securities in Toronto.

“The jobless claims rose but they were not really that far off from the consensus forecast.”

Initial claims for state unemployment benefits climbed 13,000 to 336,000, just above the level expected by economists in a Reuters poll, Labor Department data showed on Thursday.

Despite the increase, the four-week moving average for new claims, which gives a better reading on labor market trends because it smoothes out volatility, fell to its lowest level since November 2007.

In afternoon New York trading, the dollar .DXY was up 0.3 percent against a basket of currencies at 81.449, after breaking through initial resistance at 81.604, its 200-day moving average. It hit an intraday high of 81.719, a one-week peak.

The U.S. 10-year Treasury yield set a fresh two-year high of 2.936 percent on Thursday. Such a rise in yields can increase the attractiveness of dollar-denominated assets.

The dollar hit a more than two-week high against the yen at 98.80 yen, breaking past the August 15 peak of 98.66 yen, which was acting as initial resistance. It was last at 98.67 yen, up 1.0 percent.

The spread between U.S. ten-year Treasury yields and equivalent Japanese (JGB) yields stood at highs last seen in April 2011, favoring the dollar over the yen.

The euro was flat at $1.3351. Earlier in the global session, it had fallen on reported selling by real money accounts. Chartists said support was at $1.3243, the May 1 high.

The euro had pared losses against the dollar and gained broadly against other currencies after preliminary Purchasing Managers’ Index data showed business activity across the euro zone picked up more than expected this month, led by Germany.

Europe’s common currency is finally garnering support from investors after being shunned during most of the financial crisis. Some investors are convinced that the euro zone, led by Germany, has turned the corner.

Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York noted that spreads between U.S. and core European Yield products have begun to tighten, even though U.S. equities continued to outperform their European counterparts.

“It seems that as investors are moving risk out of emerging markets, they are adding risk in Europe,” said Borthwick.

The euro zone’s PMI figures boosted the euro against the yen, rising 0.9 percent to 131.64 yen.

The euro also gained against sterling, up 0.5 percent at 85.68 pence and hit a near three-year high versus the Norwegian crown at 8.1649 crowns. It was last at 8.1435 crowns, up 0.3 percent.

Reporting By Gertrude Chavez-Dreyfuss and Wanfeng Zhou; Editing by Nick Zieminski

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