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Dollar sulks, bonds sag
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March 10, 1999: 9:16 a.m. ET
Thwarted rate hopes push currency into retreat; Treasury traders take profits
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NEW YORK (CNNfn) - The dollar suffered through the Greenspan strain of the no-inflation flu Wednesday, sinking against both yen and euro and wafting a breath of contagious selling to the Treasury market.
By 9:00 a.m. ET, the U.S. currency had fallen another entire yen, straddling the 120-yen bar at 120.08. The losses bring the dollar back to its March 2 levels, erasing all the gains made after the Bank of Japan effectively reduced a key Japanese interest rate to zero.
Since then, a two-day rally in Tokyo stocks has resurrected confidence in the capability of the Japanese economy to pull itself out of recession, calling the yen buyers back out of hiding.
In addition, the traditional yen repatriation season is now fully underway, spurring additional yen demand. March ends the Japanese fiscal year, leading many investors to park their capital in yen-denominated securities for bookkeeping purposes.
The euro took advantage of the dollar's weakness, climbing nearly an entire cent to $1.0955 from its previous close of $1.0881. Speculation that Europe could be teetering into a recession seemed mostly quelled, curbing the ten-week-old currency's drift into record lows.
It's the economy
Despite these mostly technical factors, perceptive traders attributed the dollar's recent weakness to the U.S. economy's recent show of strength without inflation.
A growing economy ordinarily begins to generate inflationary pressures, in turn goading the Federal Open Monetary Committee (FOMC) to raise interest rates. Higher interest rates drive up demand for dollars and so render the currency more valuable in real terms.
However, a barrage of indications ranging from the consumer price index to Tuesday's high productivity figures have discouraged dollar bulls, crushing hopes for an interest rate hike in the near future.
Ripples from Greenspan: bonds
FOMC chief Alan Greenspan decisively buried rate hopes Tuesday by telling a conference that "there are no obvious signs of inflationary pressures," sparking dollar selling that continued through Wednesday morning.
Although the U.S. Treasury market initially rallied on Greenspan's comments, profit-taking and ennui led the bond market to open mixed Wednesday.
By 9:00 a.m. ET, the benchmark 30-year Treasury bond was trading down 1/32 of a point in price at 95-28/32, to yield 5.53 percent. Most other maturities were slightly lower, although 10-year paper was still struggling faintly higher, up 2/32 to yield 5.16 percent.
The bond market can look to few external events this week for direction, but will instead have to steer itself through technical factors and movements in other financial markets.
Thursday's economic calendar is light, with only trade reports and the weekly jobless claims figures scheduled. Friday, however, will give a slightly more interesting push in the form of producer price index data, a key indicator of inflation. 
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