NEW YORK: The dollar climbed to a near two-week high against the euro and a more than one-week high against the yen on Thursday, but surrendered gains as data gave conflicting pictures of the strength of the US economic recovery, muddying views on when the Federal Reserve will begin trimming stimulus.
A surprisingly sharp drop in initial US weekly claims for jobless benefits and an inflation figure for July that was in line with expectations supported views that the Fed will begin shifting its policy stance sooner rather than later, driving the dollar higher. .
But the dollar surrendered gains against the yen after data showed factory activity in the US mid-Atlantic region weakened in August as new orders fell and the pace of hiring slowed.
"The underlying sentiment in the currency markets is fast shifting to pro-dollar and the reason is rising US interest rates," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey. "The real currency action is in the Treasury market where the yield on the 10-year bond is at a two year high."
Higher US yields raise the attractiveness of dollar-denominated assets.
The euro was last down 0.1 percent at $1.3249. Against the yen, the dollar was down 0.3 percent at 97.85 yen . The euro earlier touched its lowest level against the dollar since Aug. 2 while the dollar rose to its highest against the yen since Aug. 5.
The greenback's fortunes have been tied for months to expectations of when the US central bank will start to taper its monthly asset purchases from the current $85 billion. It slid more than 4 percent against a basket of major currencies between July 9 and Aug. 8, and has risen since then.
Remarks by the president of the St. Louis Fed, James Bullard, late on Wednesday added to the uncertainty, with Bullard saying he had not made up his mind if next month's policy meeting would be too soon to start curbing bond buying, as he was wary of being too aggressive.
"This sort of broad two-way bouncing around in the dollar is what we are going to see in the near term, until the market has some certainty on Fed tapering, and that probably won't come until the Fed actually announces it," said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
But the ongoing debate about when the Fed will taper was pushed aside by the initial weekly jobless claims report, data that is usually ignored by the Street. Last week's jobless claims marked the lowest level since November 2007. US Treasuries yields hit their highest level in two years on Thursday after the data.
Benchmark 10-year notes yields US10YT=RR rose as high as 2.823 percent, the highest since Aug. 1, 2011. Thirty-year bond yields US30YT=RR increased to 3.838 percent, the highest since Aug. 8, 2011.
US consumer prices rose as expected in July, which could comfort Fed officials worried about low inflation as they weigh trimming the central bank's massive bond-buying program. . One sticking point for Fed policymakers had been the level of US inflation, which is below the Fed's target.
The yen had earlier risen against the dollar after Japan's chief government spokesman, Yoshihide Suga, and Finance Minister Taro Aso played down a story in the Nikkei business daily that the government was considering cutting the corporate tax rate.
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