* Dollar strength sustained as Egypt's Mubarak steps down
* Dollar up vs yen for 8th straight session
* Bond yields still significant factor in FX
(Recasts; updates prices, adds quote, changes byline)
By Julie Haviv
NEW YORK, Feb 11 (Reuters) - The U.S. dollar strengthened
against other currencies on Friday after briefly losing ground
on news that Egyptian President Hosni Mubarak stepped down,
with the greenback's appeal expected to continue given
technical factors weighing on the euro.
The euro hit a three-week low, and as it failed twice to
break the $1.35 level, this put even more focus on the
downside.
The euro temporarily pared losses after Egyptian President
Hosni Mubarak stepped down and handed power over to the Supreme
Council of the Armed Forces. For the latest stories on Egypt,
see []
"It was a kneejerk reaction and it didn't last because
there are bigger things driving the euro right now," said Brian
Dolan, chief currency strategist, at Forex.com in Bedminster,
New Jersey.
"Egypt is now seen as a regional political drama and the
market seems to think the risk of a fundamentalist takeover
there is overblown. But the concerns most heavily weighing on
the euro -- the ongoing debt crisis -- are still there, and for
now, the downside is still in play," he said.
Win Thin, global head of emerging markets strategy, at
Brown Brothers Harriman in New York, said there are still more
questions than answers with regard to Egypt's fate and so
investors must be prepared for ongoing volatility.
"Will the protesters trust the military and will it be able
to deliver on official promises to open up the country to
greater democracy and freedoms?," he said. "We are hopeful, but
if the protesters continue to push for more immediate relief,
will the military allow them to continue or will it crack
down?"
The dollar has smartly benefited from a spate of U.S.
economic data reflecting a recovery well underway and most
strategists are looking for more outperformance on the dollar.
In early afternoon New York trading, the euro fell 0.4
percent to trade at $1.3532 <EUR=EBS>, after earlier hitting
$1.3497 -- its lowest since Jan. 21. Key support for the euro
lies at $1.3500, a point that traders cited as an options
barrier, with reports of strong bids ahead of that level.
Technical analysts said if the pair closes below the euro's
100-day moving average at $1.3542, it would be the first time
since Jan. 17. As a result, the single euro zone currency could
see further downside.
The ICE Futures' dollar index <.DXY>, which measures the
greenback's performance against a basket of currencies, was up
0.3 percent at 78.508.
Traders said the European Central Bank bought Portuguese
bonds after yields on the country's debt hit euro-era highs.
The latest spike in yields has sparked fresh concerns about
funding costs in peripheral euro zone economies.
Bond yields have also been driving the price in euro/dollar
in favor of the greenback, with spreads between two-year U.S.
Treasuries and German Bunds narrowing, said Andrew Busch,
global currency strategist at BMO Capital Markets in Chicago.
He said the two-year U.S. Treasury/Bund spread peaked in
late January at around 89 basis points, but has since narrowed
to 60 basis points or less, describing this as a big deal.
The dollar's outperperformance against the yen has been
stronger than the euro. The greenback, which gained versus the
yen for eight straight sessions, is on track for a weekly gain
of 1.6 percent, its best performance in more than a month.
The dollar touched its highest level in a month at 83.68
yen <JPY=EBS>, and was last up 0.3 percent at 83.52 yen,
boosted by the rising trend in U.S. Treasury yields.
The dollar also made headway against the Swiss franc,
rising to a one-month high at 0.9750 on demand from a Swiss
bank. The franc was further undermined on weaker-than-expected
Swiss inflation data released Thursday.
The dollar <CHF=> was last at 0.9730, up 0.4 percent.
(Additional reporting by Gertrude Chavez-Dreyfuss and Steven
C. Johnson, Editing by Chizu Nomiyama)
