Dollar continues to rise, with Treasury yields near year lows, as investors pare risk

Dollar keeps gaining as traders pare risk exposure

NEW YORK — The safe-haven dollar further strengthened Friday and Treasury yields hovered around their lows for the year as worries about the economy in 2010 diminished traders’ appetites for risky bets.

After Lehman Brothers collapsed in September 2008 setting off a global financial crisis, the dollar got a huge boost. Investors flooded into the buck and Treasurys, while stocks and commodity prices tumbled worldwide.

The greenback, however, gave back all of those gains during the stock market rally that began in March.

“Once we got there, we got the question: Where does U.S. dollar go now?” said David Watt, senior currency strategist at RBC Capital in Toronto. Investors are not as willing to take on risk right now as they were in spring, he said, which could prop up the greenback.

There is a chance the euro has peaked slightly above $1.50, said Bob Sinche, independent global strategist and former head of global foreign exchange strategy at Bank of America, even though there’s not much demand for dollars outside of the lure of safety. Big investors winding down their books for the year may also give the dollar a boost.

On Friday, the 16-nation euro dropped to $1.4857 in late New York trading from $1.4919 late Thursday. Earlier this morning, the euro dipped below $1.48 for the first time since Nov. 3.

Meanwhile, the British pound tumbled to $1.6481 from $1.6647, while the dollar dipped to 88.96 Japanese yen from 89.01 late Thursday.

The dollar jumped on Thursday as investors sought safe havens following disappointing U.S. economic data.

The government reported that jobless claims for the newly unemployed remained high, and another report showed more homeowners sinking into foreclosure. The Conference Board, a private research group, said its forecast of economic activity grew, but analysts said momentum was dropping and the U.S. would have slow, bumpy growth next year.

Weaker economic news can support the dollar as investors cut their bets on more volatile stocks, commodities and emerging-market currencies and buy up the dollar and short-term U.S. Treasurys.

The yield on the three-month T-bill circled zero. In trading Friday, the T-bill gave a 0.02 percent return after falling as low as 0.005 percent late Thursday, its weakest level in a year. Meanwhile, the Dow Jones industrials slipped 14 points in light selling.

Still, analysts cautioned that two days of a stronger dollar didn’t make a trend.

“There’s not a lot to speak well for the dollar,” said Sinche. The big trade deficit in the U.S. and record U.S. budget deficits, along with interest rates near zero for what the Federal Reserve says is an “extended period” have investors looking askance at the buck.

Super-low interest rates make a currency less attractive, and investors tend to transfer funds to assets that earn higher returns.

In other late trading, the dollar rose to 1.0182 Swiss francs from 1.0133 francs, and gained to 1.0714 Canadian dollars from 1.0626.

“Right now, traders are poised to buy dollars and sell euros,” said David Gilmore of Foreign Exchange Analytics in Essex, Conn. That’s the way trading momentum is at the moment as some investors start to worry about problems in the U.S. economy next year, he said. But “the bar is pretty high to throw in the towel on being long risk.”