Dollar solidly outperforms rivals

The dollar solidly outperformed rival currencies on Thursday after a fall in US jobless claims, with more gains foreseen against the euro on concerns that Europe is not adequately tackling its debt crisis. The dollar rose for a seventh straight day against the yen. The Swiss franc, meanwhile, fell as safe-haven demand faded as Egyptian President Hosni Mubarak said he would transfer powers to his vice president.
Traders said a recent spike in US yields may prompt further dollar gains in the days ahead. "Higher yields have benefited the dollar, while Portuguese 10-year bond yields are uncomfortably above 7 percent, which is reminding investors that the stress in the eurozone periphery has not disappeared," said Win Thin, global head of emerging markets strategy at Brown Brothers Harriman in New York. US 30-year Treasury bonds briefly traded more than a point lower in price, extending losses following an auction of $16 billion of the bonds.
The euro hit a $1.3578 session low, with support seen at $1.3541, the 100-day moving average. It pared losses by late afternoon in New York and was last down 1.0 percent at $1.3591. It remained above the widely perceived pivotal level of $1.35. Thin said recent stronger US data is likely to underpin a dollar rally, with higher US yields and a potential pivot point in risk reversals also a signal of strength.
"The peripheral debt issues have not gone away and with European leaders' next meeting about a month away, investors are losing their patience," he said. The dollar neared a one-month high at 83.29 yen before easing to 83.23 yen, up 1.0 percent. The currency pair had breached 82.93, its January 28 high, and there were large stops at above 82.90 and 83.00. The break above the Ichimoku "Cloud" put the technical bias to the upside, a trader said.
A BofA Merrill Lynch research report suggested a short yen position versus a long 2-year USD rate on a beta-weighted basis. "This trade is consistent with our core calls for gradual weakening of the JPY and lower front-end US rates in the medium term," the bank said.
Sterling fell as low as $1.6011 overnight after the Bank of England left interest rates at record lows despite chatter about a possible hike, though it recovered by midday in New York to trade only 0.1 percent lower at $1.6093. The euro, which hit a 12-week high above $1.38 earlier this month, struggled as investors drove Portuguese bond yields to their highest level since the currency was introduced in 1999.
The recent pullback stalled right against support at $1.3498, according to RBC Capital Markets. The $1.3498 level will have to be taken out in order to sustain a deeper pullback that would expose secondary supports at $1.3246 and $1.3015, the bank said.