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FOREX-Dollar drops as yield support fades amid expectations of low U.S. rates

·3 min read

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E * Fed speakers expected to repeat that rates will remain low * Dollar loses ground as Treasury yields stall * Yen falls on crosses as economic concerns grow By Stanley White TOKYO, May 18 (Reuters) - The dollar plumbed a six-year trough against the Canadian dollar and teetered near multi-month lows versus European currencies on Tuesday, as Treasury yields stalled amid renewed expectations the United States will not hike interest rates anytime soon. Dallas Federal Reserve President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, fuelling a further decline in bets that inflationary pressure could force the Fed to act sooner. This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed this year. However, the growing consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies. "The most important point is where are yields headed," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities. "Yields are capped, reflecting expectations that U.S. monetary policy will remain easy," Ishikawa added. "This places the dollar under downward pressure." The benchmark 10-year U.S. Treasury yield stood at 1.6454%, extending a pullback from a five-week high reached last week. The dollar traded at $1.2164 against the euro, close to the weakest since Feb. 26. The British pound rose to $1.4177 to reach its strongest since late February. Sterling has been buoyed recently as investors cheer the gradual lifting of strict coronavirus restrictions. The Canadian dollar advanced to a six-year high of C$1.2030 against the greenback, aided by a rise in oil prices. The dollar held steady at 109.19 yen. The currency pair has been locked in a narrow range amid worries about Japan's slow pace of vaccinations and weakness in the greenback. The yen fell against the British pound and the Antipodean currencies after data showed Japan's economy contracted more than expected due to coronavirus infections. Some investors were already scaling back expectations for a Fed rate hike this year, and Kaplan's comments gave traders even more incentive to sell the dollar. The onshore yuan edged up to 6.4279 per dollar, not far from an almost three-year high reached last week. The Australian and New Zealand dollars also rose against their U.S. counterpart. In the cryptocurrency market, bitcoin rose 3.85% to $45,272 but was still close to a three-month low amid doubts about Tesla's boss Elon Musk's enthusiasm for the digital asset. Rival digital currency ether rose 6.95% to $3,509, steading from a two-week low reached on Monday. ======================================================== Currency bid prices at 0458 GMT Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $1.2164 $1.2152 +0.10% -0.44% +1.2169 +1.2153 Dollar/Yen 109.1950 109.1750 +0.02% +5.72% +109.2750 +109.1300 Euro/Yen Dollar/Swiss 0.9018 0.9033 -0.13% +1.96% +0.9035 +0.9017 Sterling/Dollar 1.4170 1.4139 +0.22% +3.72% +1.4177 +1.4135 Dollar/Canadian 1.2043 1.2068 -0.20% -5.42% +1.2071 +1.2030 Aussie/Dollar 0.7786 0.7770 +0.23% +1.23% +0.7797 +0.7765 NZ 0.7234 0.7216 +0.28% +0.77% +0.7242 +0.7211 Dollar/Dollar All spots Tokyo spots Europe spots Volatilities Tokyo Forex market info from BOJ (Reporting by Stanley White; Editing by Himani Sarkar)