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Dollar mighty; bonds weak
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June 2, 1999: 9:21 a.m. ET
Euro sinks to new lows and yen slips while bonds drift, seeking direction
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NEW YORK (CNNfn) - A strong dollar took over center stage in U.S. money markets Wednesday morning, pushing higher against both the euro and the yen as the Treasury market extended losses posted Tuesday.
Shortly before 9 a.m. ET, the dollar kept the pressure on the euro, forcing the young European currency to fresh lifetime lows and testing a key resistance level. The euro fell to $1.0342 around the European midsession before bouncing marginally to $1.0359 in early U.S. trading.
Previously, the euro's low point in its five-month history was $1.0370, touched last Friday amid fears that the unflattering contrast between Europe's sagging outlook and the explosive U.S. economy would inevitably favor the dollar.
More significantly, the euro's newest plunge cracked the $1.0345 technical support level, setting off sirens in the minds of euro bulls who had viewed the level -- the equivalent of a 10-year low for the German mark against the greenback -- as the currency's last refuge before falling to dollar parity.
Currency traders said the euro's underlying sentiments remained gloomy, especially after the European Central Bank refused to fulfill popular expectations of an interest rate cut, leaving rates unchanged instead. The ECB also continued recent policy by offering no concrete support for the euro in the form of interventionist promises of a rescue should the currency fall too far.
Yen eases as JGBs firm
The dollar also gained on the yen, overturning the losses suffered in Tuesday's Wall Street-inspired dollar selling to trade at 121.02 yen.
Traders attributed the reversal to a number of sentimental factors, including yen-disparaging comments from Federal Reserve Vice-Chairwoman Alice Rivlin, who said Tuesday "it is not clear" whether Japan's troubled economy has reached its low point yet.
A stronger Japanese bond market also played into the yen's retreat. Japanese government bonds (JGBs) recovered somewhat from Tuesday's dramatic downturn after an official in Japan's ruling government coalition reiterated his call for more extensive central bank bond buying.
In an interview with Reuters Television, Yoshio Suzuki, deputy policy chief of the Liberal Party, said the Bank of Japan should buy more JGBs from the market, relieving selling pressure by cutting supply "if necessary."
Treasury bonds continue slide
The U.S. bond market got no such vote of confidence, leaving Treasury debt to extend Tuesday's sharp retreat.
The benchmark 30-year Treasury bond fell 10/32 of a point in price to 90-9/32, pushing the yield up to 5.95 percent.
Bond yields have not been so high in more than a year, leading traders to wonder whether - or when -- the long bond would rise above 6 percent.
Many market participants expected activity to be uninspired as the market awaited an afternoon speech by Federal Reserve Chairman Alan Greenspan. Although Greenspan's comments will be on the topic of technology and trade, weary traders hope he will throw financial markets some hint of interest rate policy.
An unexpectedly strong manufacturing report gave weight to fears that the Fed could raise rates as early as its June 29-30 meeting, encouraging dramatic selling in the bond market Tuesday.
Rising interest rates encourage dollar buying by making the U.S. currency more valuable compared to other units. However, high rates depress the effective returns bonds offer, hurting them in the estimation of investors.
The April new home sales report due later Wednesday morning was unlikely to give the market much direction, traders said. 
-- by staff writer Robert Scott Martin
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