Battered Dollar Revives; Treasury Yields Jump

Treasury Secretary John Snow reiterates support for a ‘strong’ buck. Bond rates increase as oil prices drop.

The dollar rallied modestly Wednesday after Treasury Secretary John W. Snow reiterated the Bush administration’s official support for a “strong” currency.

Falling oil prices also may have helped bolster the greenback, which has fallen sharply in the last few weeks.

In the Treasury bond market, yields jumped as the drop in energy prices boosted optimism about U.S. economic growth. The 10-year T-note yield ended at 4.09%, up from 4% on Tuesday.

Sentiment toward bonds also was hurt by relatively weak bidding at the Treasury’s auction of $24 billion of two-year notes. The yield on the notes was 2.59%. Demand for the notes was the poorest since January’s auction.

At a meeting with business leaders in Cedar Rapids, Iowa, Snow was asked about foreign exchange fluctuations. He repeated the administration’s backing for a “strong dollar,” but also said, “We feel that a currency’s exchange value ought to be set in open and competitive currency markets.”

He declined to comment on differences in rhetoric between the Treasury and the Federal Reserve. A number of Fed officials in recent weeks have suggested that the dollar should decline further as a way to fix the nation’s record trade deficit.

Normally, only the Treasury speaks to U.S. foreign exchange policy while the Fed handles monetary policy.

“I don’t comment on the Fed,” Snow said after the discussion, responding to a question about the apparent policy rift.

A weaker dollar cuts the price of U.S. exports for foreign buyers. But it raises the cost of imports for American consumers.

Some analysts have said the dollar’s slide this month reflected worries in the currency market that the Bush administration was poised to back a lower dollar.

The euro rose against the dollar for nine straight sessions through Monday. On Wednesday, the euro fell to $1.271 in New York from $1.277 on Tuesday.

The dollar continued to fall against the yen Wednesday, ending at 106.51 yen in New York, down from 106.72 on Tuesday. It was the 10th straight decline.