US dollar falls against yen on US yield drop, profit-taking

[NEW YORK] The US dollar hit a 15-day low against the yen on Thursday as traders used the quiet holiday period to take profits on the US dollar's recent gains, while a drop in US Treasury yields on waning risk appetite reduced the greenback's appeal.

The US dollar was last down 0.5 per cent against the yen at 116.65 yen after falling as much as 0.9 per cent in early trading to 116.23 yen, its lowest level since Dec 14. The greenback had gained 11.5 per cent against the Japanese currency between the Nov 8 US election and Wednesday.

Those gains came partly as US Treasury yields surged to multi-month and multi-year peaks on a faster projected pace of Federal Reserve interest rate increases next year and expectations that US President-elect Donald Trump's policies would boost inflation.

Yields on most US Treasuries hit at least two-week lows on Thursday, however, halting the US dollar's gains by reducing the appeal of higher-yielding US assets compared to those of other countries.

"It's profit-taking," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.

"The strong dollar that we've seen since the start of November seems to be in a toppish environment." He also noted that trading remained thin during the holiday period.

The euro was last up 0.71 per cent against the US dollar at US$1.0481 after touching a one-week high of US$1.0493 in afternoon trading, but was still on track to fall 3.5 per cent against the US dollar this year.

Data on Wednesday showing contracts to buy previously owned US homes fell in November to their lowest level in nearly a year contributed to the US dollar's weakness, said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

"The dollar fall was mostly due to renewed doubts about the US recovery after pending home sales dropped in November. This is where the risk-off reversal started," Mr Ozkardeskaya said.

The US dollar index, which measures the greenback against a basket of six major currencies, was last down 0.59 per cent at 102.690 after touching 103.630 on Wednesday and flirting with a 14-year high of 103.650 struck on Dec 20.

The index has gained 4.1 per cent this year, with all those gains having come after the November US election.

The US dollar hit a two-week low against the Swiss franc of 1.0208 francs, while sterling was up 0.2 per cent against the US dollar at US$1.2250 after touching a two-month low of US$1.2201 on Wednesday.

REUTERS