Monday June 8, 2009 - 10:34:21 GMT
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Reuters - www.reuters.com
FOREX NEWS-Ireland downgrade hits euro, US yields lift dlr
* Ireland downgrade pushes euro down toward $1.38
* Dollar index .DXY hits highest since May 20
* 2-year US yields jump to highest in 7 months
(Recasts, updates prices, adds quotes, changes byline)
By Jamie McGeever
LONDON, June 8 (Reuters) - The euro slumped against the
dollar on Monday, dragged down by another sovereign downgrade
for Ireland and giving added support to a U.S. currency already
buoyed by surging Treasury yields following Friday's U.S. jobs
Ratings agency Standard & Poor's cut Ireland's sovereign
credit rating on Monday to AA, its second downgrade in three
months and the catalyst for the euro's lurch lower to a near-two
week low of $1.3806 [ID:nL8601886].
This added to the dollar's widespread strength already
bolstered after smaller-than-expected job losses in the United
States last Friday raised speculation the U.S. Federal Reserve
may lift interest rates early next year, triggering a sharp jump
in two-year Treasury yields to a seven-month high.
"It is negative for the euro," said Audrey Childe-Freeman,
senior FX strategist at Brown Brothers Harriman, referring to
the S&P downgrade.
"The euro was already looking vulnerable this morning (and)
the news added to the negative sentiment. It is not a major
shock but it is certainly going to weigh on the euro," she said.
The euro fell as low as $1.3806 <EUR=>, according to Reuters
data, and at 1015 GMT was last down 1.1 percent on the day at
Against the yen, the euro was down 1.1 percent at 136.20 yen
The dollar index, a gauge of the greenback's value against a
basket of six major currencies .DXY, was up 0.9 percent on the
day at 81.34, its highest since May 20.
On Friday, the dollar index rose 1.6 percent, its best
performance since Dec. 19, Reuters data showed.
The dollar slipped 0.1 percent against the yen to 98.54 yen
<JPY=>, still close to a one-month high of 98.90 yen on trading
platform EBS on Friday.
The dollar was buoyed before Ireland's downgrade as
investors focused on improving prospects for the U.S. economy,
reversing a trend where the dollar had been sold for higher risk
currencies in response to better economic fundamentals.
Market players covered dollar-short positions, exacerbating
gains, as many thought the dollar's recent falls were overdone.
The pace of U.S. job losses slowed sharply last month, the
strongest sign to date that the recession is diminishing, even
as the unemployment rate hit its highest in nearly 26 years.
Two- and 10-year U.S. Treasuries yields hit highest levels
since November in Asia on Monday as Treasuries extended
"Payrolls didn't appear as bad as expected, and the Fed's
Lockhart said the Fed might start tightening cycle (soon) ...
which has prompted sharp dollar buying across the board,
together with short-end U.S. yields rising sharply," said
Roberto Mialich, FX startegist at Unicredit in Milan.
Atlanta Fed President Dennis Lockhart said on Friday the Fed
needs to be "anticipatory" and not wait too long before
tightening monetary policy [ID:nN05506543].
With currency movements closely following U.S. bond yields,
markets will focus on a slew of Treasuries auctions this week.
The U.S. government is scheduled to sell $65 billion in debt
including 10-year and 30-year securities. [US/]
Meanwhile, sterling fell 0.8 percent to $1.5837 <GBP=D4> on
political uncertainties in the UK. [nL8497182]
Britain's Prime Minister Gordon Brown faced a renewed
challenge to his leadership on Monday after support for the
ruling Labour Party plunged to its lowest level in a century in
European elections. [ID:nL8653796]
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