Wednesday June 10, 2009 - 20:18:09 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar rises as fears over govt debt sales ease
* U.S. dollar recovers after drop on Russia's comments
* Higher risk appetite fades; euro, sterling retreat
* U.S. Treasury sells $19 billion in 10-year notes
* Doubts about strength of global recovery linger
(Adds comments, details, updates prices)
By Vivianne Rodrigues
NEW YORK, June 10 (Reuters) - The U.S. dollar rose broadly
on Wednesday as an auction of $19 billion in 10-year Treasury
notes eased some investor fears about the United States'
ability to sell long-term debt to help finance a ballooning
The dollar fell earlier after Russia's central bank said it
will diversify its currency reserves by cutting U.S. Treasury
purchases and buying IMF-backed bonds. But analysts said any
Russian plans to diversify away from dollars would take time.
For more see [ID:nLA1052951].
The Treasury Department sold 10-year notes at a high yield
of 3.99 percent as part of a combined sale of $65 billion in
government debt this week. Wednesday's auction was the first
real test of the government's long-term borrowing ability since
investors began to wonder last month whether its prized AAA
credit rating may be living on borrowed time.
"There were concerns about appetite for Treasuries. The
results of this auction have put to rest those concerns for the
time being and any peripheral fears about the dollar as a safe
store of value have also been put aside," said Michael
Woolfolk, senior currency strategist, at The Bank of New York
Mellon in New York. "This is positive for the dollar overall."
Traders also said the euro's rise to $1.4145 earlier
<EUR=EBS> triggered automatic sell orders that pushed it to
$1.3915 before moving to $1.3980, down 0.6 percent on the day.
The dollar extended gains after a Federal Reserve report on
U.S. economic conditions, known as the Beige Book, said the
economy was still weak but there were signs that the slide was
Woolfolk added the Fed report appeared to have prompted an
increase in risk aversion that was giving further support to
the greenback in afternoon trading.
The dollar rose 0.8 percent to 98.22 yen <JPY=EBS>,
according to electronic trading platform EBS.
HIGHER US YIELDS
The dollar gained even as stocks and bonds sold off after
the auction. Bonds extended losses after the debt sale, with
the benchmark 10-year note <US10YT=RR> yield rising to as much
as 4.00 percent after the sale, its highest since October.
"The rise in yields is seen as largely a normalization
process," Marc Chandler, a senior currency analyst at Brown
Brothers Harriman in New York, said in a note.
"Ideas that the Fed will increase its purchases of
Treasuries before the next FOMC meeting have been dampened in
recent days. It is not clear that there is sufficient appetite
among officials to buy a sufficient amount of Treasuries to
really cap yields," he added.
Russia's plans to diversify its reserve holdings also sent
U.S. Treasury yields higher early Wednesday and initially added
to broad-based dollar selling.
Russia holds about 30 percent of its $404.2 billion foreign
exchange reserves in Treasuries, making it the fifth-largest
holder of U.S. government debt. [ID:nLA1052951]
But analysts said Russia's roughly $140 billion in
long-dated U.S. Treasuries pales in comparison to the sheer
volume of outstanding debt. The Treasury plans to issue some $2
trillion this year alone.
With the U.S. budget deficit expected to hit about $1.8
trillion this year and rise even further from there, "of course
everyone wants to diversify their holdings in the long run,"
said Firas Askari, head of FX trading at BMO Capital Markets,
in Toronto. "But they're all long Treasuries and can't just
dump them at once," he added.
(Additional reporting by Steven C. Johnson and Gertrude
Chavez-Dreyfuss; Editing by James Dalgleish)
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