The dollar advanced for a fourth straight session on Thursday in a risk-averse market that saw stocks and commodities sell off on concerns the banking and fiscal problems of the eurozone's peripheral countries could spread to healthier economies in the region.
Commodity currencies such as the Australian, Canadian, and New Zealand dollars, including emerging market units, posted sharp losses against the safe-haven US dollar as well, as investors grew frustrated the two-year old debt crisis remained unresolved. "I think this eurozone crisis could worsen before it gets better," said James Keegan, chief executive and chief investment officer at Seix Investment Advisors in Upper Saddle River, New Jersey.
Bond yields in some debt-ridden eurozone countries such as Italy dropped from extreme levels, which suggested easing investor anxiety. That initially underpinned the euro, but the support faded on more negative developments in Italy. By late afternoon, the dollar index, a gauge of its value against six currencies, rose 0.4 percent to 78.301. "For now, the dollar will only rally when there's a crisis," said Kit Juckes, head of foreign exchange at Societe Generale in London.
The euro was little changed versus the dollar at $1.34610, having risen as high as $1.35403 on trading platform EBS. It had earlier fallen to a five-week low of $1.34210. Below there, key downside target lies near the October low of $1.3140. Traders cited bids in the $1.3440 area.
Italian bond yields on Thursday fell back below the critical 7 percent mark, a level widely deemed unsustainable, as Prime Minister Mario Monti unveiled sweeping reforms to dig the country out of crisis. The spread between French 10-year bond yields and German bunds also eased from record highs.
That helped the euro bounce back above $1.35 after three straight days of decline. The outlook for the common currency remains bleak, however, and it would likely resume weakness next week should it fail to go beyond $1.36, analysts said. Against the yen, the euro was down at 103.598, rebounding from a five-week low of 103.40 set earlier on EBS. The dollar slipped 0.1 percent to 76.979 yen.