Tuesday, 7 Dec 2010

US Dollar Recovers Strongly on Bond Increases

The dollar strengthened sharply in New York trade Tuesday on the back of rising Treasury yields, which drew more investors to the currency on the prospect of higher returns.

The benchmark 10-year yield touched 3.15%, the highest level since 3.17% on June 25. Analysts said the rise in Treasury yields followed President Barack Obama's agreement with Republican leaders in Congress on a broad tax package that would extend the Bush-era income tax cuts for two years. That further shored up near-term confidence in fiscal responses to a sluggish U.S. economy, also sending U.S. stocks higher on the day.

The dollar had its largest daily spike against the yen since Sept. 15, climbing roughly 1% Tuesday. The euro pared all its early Tuesday gains against the dollar on an expected positive vote on the Irish 2011 austerity budget. The euro was largely unmoved after news broke from an Irish finance official claiming the government had an "absolute majority" to pass the budget.