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The dollar
hovered above all-time lows Monday as traders wondered whether
central banks would step in to stop its slide against the euro and
yen.
Bonds were little changed, with long-term
government debt posting a slight advance, following Friday's employment
report-fueled rally that pushed yields on the 10-year note below 4.25
percent.
The dollar struggled to stay above last week's
record low against the euro and five-year low versus the yen as
Japanese vice finance minister Koichi Hosokawa promised the country
would take "bold action" against the weak dollar if needed.
Euro zone finance ministers are expected to discuss
the dollar's fall at a meeting later today, but analysts say rhetoric
is not enough to pull the dollar higher.
"My
feeling is rhetoric alone will not stop the dollar's fall, and we
could see a test of $1.35 when New York trade gets into full
swing," Lee Ferridge, head of global market strategy at
Rabobank, told Reuters.
The dollar has slid for two months on worries about
the giant national trade and budget deficits and a belief on Wall
Street that a weaker dollar may be wanted by Washington to narrow the
gaps.
With the U.S. currency weakened, central banks,
including those in oil-producing countries, are diversifying reserves
out of dollars.
In its quarterly report released Sunday, the Bank
for International Settlements said OPEC countries have cut the share
of their deposits in dollars by more than 13 percentage points in the
last three years, mainly to the euro's advantage.
"The
reserve diversification story is a long term negative factor for the
dollar," Adam Myers, foreign exchange strategist at Societe Generale,
told Reuters. "It is feeding into worries over how the U.S. will
finance its deficit and the cyclical story is being forgotten."
The prospect of a higher interest rates in December
-- which makes dollar-denominated assets more attractive -- has not
sparked a dollar rally.
In the Treasury market, prices leveled off after
posting a dramatic surge Friday on news that the economy generated
far fewer jobs in November than expected.
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