Dollar falls amid bond concerns


July 15, 2010 Updated Jun 14, 2009 at 9:42 PM CDT

The dollar fell against the euro and yen Thursday, hit by concerns about its future as the world's leading reserve currency and still-rising US bond yields, dealers said.

"The US dollar remains under pressure on several fronts," said Stuart Bennett, an analyst at French bank Calyon.

In late morning London trade, the European single currency rose to 1.4086 dollars, up from 1.3978 in New York late on Wednesday.

Against the Japanese currency, the dollar dropped to 97.87 yen from 98.12 yen on Wednesday.

"Risk appetite continues to rise, helped by some bullish investment figures from China and the US Beige Book," a key economic report released by the Federal Reserve on Wednesday, Bennett said.

Rising appetite for risk tends to boost the euro, seen as a less safe option than the dollar.

Bennett added that a trend of rising yields on bonds issued by the US government was also pressuring the dollar. Yields on fixed-interest bonds rise as their prices fall, which indicates slackening investor demand for them.

"The dollar remains rattled ahead of today's 30-year (US bond) auction amid fear that investors are losing their appetite for US assets," he said.

"The dollar remains caught between two contradictory forces," said another Calyon analyst, Sebastien Barbe.

"On the one hand, the issue of the diversification of foreign exchange reserves suggests the door is open to further dollar weakness (...) On the other hand, signs of an economic stabilisation in the US accumulate."

The dollar was hit by news that a top Russian central bank official said Moscow would shift part of its reserves from US Treasuries into International Monetary Fund (IMF) bonds and commercial bank deposits.

The central bank's first deputy chairman, Alexei Ulyukayev, was quoted as saying "the window of opportunity has arisen to work with other instruments".

His comments echo concerns of other members of the BRIC grouping of key emerging economies Brazil, Russia, India and China, who have touched on the possibility of buying IMF bonds, SMBC chief strategist Daisuke Uno said.

Leaders of the BRIC countries are due to meet next week in Moscow, where the dollar's role as the global reserve currency will be discussed.

Elsewhere in foreign exchange trade on Thursday, the British pound hit the highest level against the euro for more than six months.

The rally, which has seen the pound also rise versus the dollar, comes after a think tank, the National Institute of Economic and Social Research, estimated that the recession-hit British economy in fact grew in April and May.

On the bond market, rising yields were seen as a danger to economic recovery since they could push up other rates including for mortgages, hampering the fragile housing market. The 10-year bond yield rose as high as 3.99 percent.

In London trading on Thursday, the euro was changing hands at 1.4086 dollars against 1.3978 dollars late on Wednesday, at 137.85 yen (137.18), 0.8518 pounds (0.8543) and 1.5107 Swiss francs (1.5109).

The dollar stood at 97.87 yen (98.12) and 1.0726 Swiss francs (1.0807).

The pound was at 1.6535 dollars (1.6360).

On the London Bullion Market, the price of gold fell to 947.50 dollars an ounce from 953.75 dollars an ounce late on Wednesday.

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