A weak dollar no more? The buck rallies as euro falls on Ireland bailout fears

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As world leaders bicker about the weakened U.S. dollar and whether Washington is intentionally trying to drive it even lower, they’re behind the curve: The greenback rallied Thursday for a fifth straight session, the longest winning streak since late August.

The DXY index of the dollar’s value against six other major currencies gained 0.7% to 78.15, a three-week high. It’s now up 3% from a week ago after tumbling 14% from early June to its recent low.

A big reason for the dollar’s sudden appeal is that the euro is looking a lot worse, as a euro-zone bailout of Ireland seems increasingly likely. Investors continue to flee Irish government bonds on fears about the country’s solvency, driving yields sky-high.

The yield on 10-year Irish debt soared to 8.90% from 8.64% on Wednesday and 6.81% two weeks ago.

The euro, in turn, slid to $1.366 Thursday from $1.378 on Wednesday. The currency has slumped from a 10-month high of $1.421 a week ago.

“I think people are just waking up to the problems in Europe,” said Win Thin, a currency strategist at Brown Bros. Harriman & Co. in New York.

It hasn’t helped European-bond investors’ mood that Germany and France are strongly backing the idea that bondholders should share the pain of any restructuring of sovereign debt. In other words, they conceivably could see their interest rate cut or other terms of their bonds changed to their detriment.

Not surprisingly, that prospect is driving investors out of the bonds of other fiscally weak euro-zone countries, including Italy and Spain, pushing yields higher -- just as Greece’s budget crisis triggered widespread bond dumping in Europe last spring.

At the very least, surging yields make it harder for countries to refinance maturing debt.

The yield on 10-year Spanish bonds jumped to 4.63% on Thursday from 4.50% on Wednesday and 4.34% a week earlier.

Yields have been moving higher on government bonds worldwide over the last week, but Europe’s weakest countries have borne the brunt of it.

The U.S. bond market was closed Thursday in observance of Veterans Day, but on Wednesday the 10-year Treasury note yield ended the session at 2.65%, up from 2.49% one week ago.

-- Tom Petruno