* Euro slips after Fitch downgrades Ireland
* Dollar supported by higher Treasury yields, U.S. tax cuts
* Market awaits 30-yr U.S. debt auction, U.S. jobless claims
(Adds comment, updates throughout)
By Naomi Tajitsu
LONDON, Dec 9 (Reuters) - The euro slipped against the
dollar on Thursday after ratings agency Fitch downgraded
Ireland's sovereign debt while the dollar edged up, still
supported by this week's jump in U.S. Treasury yields.
With trade thin, traders said the euro was also pressured
due to selling by model-related funds and a U.S. corporate.
Fitch cut its rating on Ireland to BBB+ to reflect the
additional costs of restructuring Dublin's ailing economy and
banking sector, after the country secured a bailout from its
European neighbours last month. []
The euro <EUR=> slipped 0.4 percent to the day's low of
$1.3195, retreating from a high around $1.3320, with concerns
about steepling debt in some euro zone countries still weighing
on sentiment.
The dollar continued to draw support from an extension of
U.S. tax cuts announced this week, but gains were capped as a
retreat in 10-year U.S. Treasury yields from a six-month high
hit on Wednesday quelled demand for the greenback.
Analysts said the extended tax cuts were seen as supportive
for the economy and therefore the dollar, while U.S. Treasuries
have sold off heavily this week as the stimulus move fuelled
fears of inflation and deteriorating U.S. fiscal health. []
"The latest fixation is the tax issue and that's created a
bond angle, and it's created a growth story that is positive for
the U.S.," said Daragh Maher, FX strategist at Credit Agricole.
Other analysts said investors were wary of taking on big
positions as liquidity dries up towards year end, and this was
why the dollar's rise had been limited compared with the jump in
Treasury yields.
The dollar index has risen only 0.7 percent this week while
the 10-year U.S. Treasury yield has soared around 25 basis
points.
"We've seen a corrective move in U.S. Treasuries, whereas at
the moment we don't see a need for such a corrective move in the
dollar," said Antje Praefcke, FX analyst at Commerzbank in
Frankfurt.
The U.S. bond market may be vulnerable to more selling if a
30-year U.S. Treasury auction on Thursday attracts only limited
demand. A 10-year auction on Wednesday saw average demand.
The dollar index <.DXY>, which tracks the dollar's moves
against a currency basket, rose 0.3 percent to 80.271, rising
above its 100-day moving average at 79.953.
The 10-year U.S. Treasury yield <US10YT=RR> was at 3.25
percent, pulling back from a high of around 3.33 percent hit on
Wednesday.
The dollar <JPY=> was flat on the day at 84.08 yen.
DOLLAR AND YIELDS
Analysts say investors have been encouraged to pick up
dollars as the higher U.S. yields make dollar-denominated assets
more attractive.
But Maher at Credit Agricole argued the correlation between
currencies -- particularly the euro, the yen and the Australian
dollar -- and movements in two-year yield differentials were
stronger than for 10-year yields.
The two-year yield has risen less than 15 basis points so
far this week, much less than the 10-year yield, as the short
end of the yield curve has been anchored by expectations the
Federal Reserve is unlikely to raise interest rates soon.
"For interest rates to gain greater traction on FX, the
shorter end has to move, and we're not seeing that yet," Maher
said.
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Graphic on U.S. tax cuts, stimulus and deficits
http://r.reuters.com/des29q
Graphic on the yen and Japan/U.S. bond spreads:
http://r.reuters.com/tyx39q
Graphic on the euro and German/U.S. bond spreads:
http://r.reuters.com/huz39q
For story on tax deal impact on stocks see []
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Traders say weekly U.S. initial jobless claims data at 1330
GMT could trigger a rise in bond yields. The data last week
showed the four-week moving average of the claims at a two-year
low, stoking optimism about the U.S. recovery.
(Graphics by Scott Barber)
