Dollar withers to new lows as U.S. yields sag

30/12/2010 00:00 AST

The dollar weakened broadly on Thursday, hitting a seven-week low against the yen and a 28-year low against the Australian currency as traders took falls in U.S. bond yields as a cue to sell it.

U.S. Treasury prices recovered on Wednesday, pushing yields sharply lower, after a $29 billion auction of seven-year notes drew surprisingly strong demand a day after a weak five-year sale.

"Some market players may be building up positions for the next year. As the Federal Reserve is expected to keep printing dollars, the dollar looks set to cheapen next year," said Tsutomu Soma, manager of foreign securities at Okasan Securities.

As the euro, a natural alternative for the dollar, is smarting from concerns over debt financing of the currency bloc's peripheral countries, investors may be turning to other currencies such as the yen, the Aussie and the Swiss franc, he added.

While the relationship with bond yields and the value of a currency is not always straightforward, lower yields make a currency less attractive for investors chasing better returns, other things being equal.

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Guardian.co.uk

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