NEW YORK (CNN/Money) - The dollar rose for the fifth straight session against the euro Thursday, fueled by a growing view in the market that steady economic growth is making the United States more attractive for investment.
Treasury bond prices edged higher in subdued trading as investors awaited Friday's December jobs report.
In the currency market, the euro bought $1.3180 late in New York, down from $1.3263 late Wednesday. The dollar bought ¥105.07, up from ¥104.07 Wednesday.
"People are looking at growth and interest rate differentials for the first time in a while, along with some feelings that perhaps we've seen the worse in the double deficits," Ed Stapleton, head of foreign exchange with Fortis Bank in New York, told Reuters, referring to the trade and budget deficits.
Official U.S. interest rates currently exceed the euro zone for the first time in more than three years. The market is expecting the Federal Reserve to raise rates still further in early February, making U.S. assets -- and thereby the dollar -- all the more attractive for foreign investors.
Kansas City Federal Reserve President Thomas Hoenig said Thursday that rates were still accommodative and that financial markets saw neutral interest rates around 3 percent to 3.25 percent, versus 2.25 percent now.
Earlier in the session, the dollar weakened after an unexpected surge in last week's weekly jobless claims. Although that appeared to signal a softer labor market than anticipated, the weekly data series is notoriously volatile and subject to seasonal adjustments, so the dollar gave up only some ground, analysts said.
"The dollar's initial reaction was fairly muted, given the size of the negative surprise, but it is ahead of the payrolls report and also because one week's data does not make a trend," Richard Franulovich, senior currency strategist with Westpac Banking Corporation in New York, told Reuters.
The ongoing economic expansion has been dogged by slow job creation, and economists and markets are focused on the monthly payrolls numbers.
Economists predict the economy generated 175,000 jobs last month, up from 112,000 in November. A better-than-expected number could inspire long-term investors to push the dollar higher but also hurt Treasury bond prices on worries about faster growth sparking inflation.
Inflation is anathema to bondholder's since it erodes the value of their investments.
In the bond market, the benchmark 10-year note rose 5/32 of a point to 99-28/32, to yield 4.26 percent, down slightly from 4.29 percent late Wednesday.
The 30-year bond edged 3/32 higher to 107-25/32 to yield 4.85 percent. Bond prices and yields move in opposite directions.
The two-year note gained 3/32 of a point at 99-22/32 to yield 3.17 percent, while the five-year note gained 3/32 of a point to 99-4/32 yielding 3.70 percent.
-- Reuters contributed to this report
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