By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar gave up brief gains against the Japanese yen on Monday as U.S. Treasury yields rose, making greenback-denominated assets more attractive.
The euro turned up after the initial phase of an auction to settle credit default swap contracts on Greek government, with analysts pointing to technical levels keeping the single currency in a range.
The ICE dollar index DXY -0.43% , which measures the U.S. unit against a basket of major currencies, traded at 79.626, down from 79.776 in North American trade late Friday.
The dollar USDJPY -0.04% pared losses as yields hit the session’s high’s then lately bought 83.33 yen, little changed from ¥83.36.
Against the yen, the euro EURJPY +0.52% pared losses to trade at ÂĄ110.06, near its highest level in more than four months.
The euro EURUSD +0.74% fetched $1.3207, up from $1.3174.
The dollar has become more sensitive to the movement in Treasury rates recently, as traders shift away from the risk on-risk-off paradigm that has driven much of currency activity since the U.S. credit crisis. Read about Treasury market on Monday.
A rise in U.S. yields -- which happened very swiftly last week -- has increased the extra yield investors around the world get over their local government bonds, boosting the appeal of switching into dollars to buy U.S. assets. Interest-rate differentials are historically a big driver of currency movements.
Yields, which move in the opposite direction of prices, accelerated a move to the upside last week after the statement following last Tuesday’s Fed policy meeting was viewed as reflecting a more upbeat economic environment, lessening prospects for a third round of quantitative easing by the central bank.
On Monday, William Dudley, the president of the New York Federal Reserve Bank, said despite some positive signs growth is on a firmer footing, the economy still faces significant headwinds. Read about Fed’s Dudley.
“We should see the central bank continue to soften its dovish tone for monetary policy as the recovery gathers pace,” said David Song, a currency analyst at Daily FX. A “shift in the policy outlook paves the way for more U.S. dollar strength as interest rate expectations improve.”
Euro, Greece
The euro moved above $1.32 as traders appeared to take a more upbeat view after Greece secured its second, international bailout.
An complicated auction process was under way Monday to settle claims under credit default swaps issued on Greek debt. The first phase went smoothly and a final price will be determined at 3:30 London time, or 11:30 a.m. Eastern. Read about Greek CDS auction.
Jeremy Stretch, currency strategist at CIBC in London, said notions that Greece is secure or that the euro-zone debt crisis is contained may prove premature, but said the ability of the euro to hold above the $1.30 threshold versus the dollar means the currency could manage to grind higher in coming sessions ahead of Thursday’s closely-watched purchasing manager indexes for the euro zone.
The British pound GBPUSD +0.33% rose to $1.5886, from $1.5831.
British Chancellor of the Exchequer George Osborne will deliver the government’s latest budget plan on Wednesday.
