August 23, 2004

NEW YORK (CNN/Money) - The dollar rose higher from recent lows against the euro and the yen Monday, while bonds dropped as investors awaited economic data and a speech by the Federal Reserve scheduled for later in the week.

In the currency market, the dollar gained against the euro, with the euro buying $1.224, down from $1.2311 late Friday, and the dollar bought ¥109.54, up from ¥109.37.

During the past few weeks, the dollar has sold off on weak economic data, including a weaker-than-expected rise in non-farm payrolls and a tame reading on consumer prices, hitting a four-week low of $1.2382 last week. A lack of news has given traders an excuse to buy back dollars sold off in recent sessions.

And uncertainty over oil prices has also kept traders cautious as analysts assess whether higher energy costs will drag on the U.S. economy. News that Iraq's key southern pipeline was under U.S.-military backed protection and pumping at full capacity boosted the dollar but weakened bonds, as safe-haven investments seemed less attractive.

Traders are awaiting this week's release of U.S. durable goods orders, which is due out Wednesday, second-quarter growth data due Friday and a speech by Fed Chairman Alan Greenspan.

Wall Street will carefully listen to Greenspan for clues as to whether the Fed is prepared to stick with its pledged 'measured' pace of tightening. If interest rates rise, U.S. investments will become more attractive to overseas traders.

The Fed has said the economy is poised for faster growth but acknowledged surging energy prices were dragging on the economy.

"U.S. data have been on the soft side and it will be interesting to see if that weakness was temporary or the beginning of a weak trend, especially with oil prices being so high, which can contribute to that weak trend," Umberto Alvisi, currency strategist at CSFB, told Reuters.

"We saw a barrage of weak U.S. economic indicators last week that led to the dollar's weakness. Today, though, it seems as though people are pausing, perhaps thinking we've factored in the negative news for the dollar," Mitsuru Sahara, strategist at UFJ Bank in Tokyo, told the news agency.

As the greenback rose, bonds dropped. The benchmark 10-year note shed 10/32 of a point to 99-25/32 to yield 4.274 percent, up from 4.21 late Friday. The 30-year bond sank 18/32 of a point at 104-15/32 to yield 5.065 percent, up from 5.02 late Friday. Bond prices and yields move in opposite directions.

The two-year note fell 2/32 of a point to 100-17/32 to yield 2.461 percent, and the five-year bond dropped 6/32 to 100-6/32 to yield 3.453.

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