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US dollar's advance slows as rise in sovereign yields halts

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The US dollar's advance against its major peers slowed early on Tuesday as a rise in sovereign bond yields paused, with investors awaiting comments from Federal Reserve Chair Janet Yellen for fresh cues on policy direction.

[TOKYO] The US dollar's advance against its major peers slowed early on Tuesday as a rise in sovereign bond yields paused, with investors awaiting comments from Federal Reserve Chair Janet Yellen for fresh cues on policy direction.

The US dollar was 0.1 per cent higher at 114.160 yen following a rise to a two-month high of 114.300 overnight.

The euro was effectively flat at US$1.1397 after inching down about 0.1 per cent the previous day.

"The dollar is capped as the surge in German bund yields stopped overnight and in turn dragged down US Treasury yields. The recent surge in bond yields appears overdone and we are seeing a bit of a correction," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

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Investors have dumped euro zone government bonds over the past two weeks on expectations the European Central Bank (ECB) would unwind extraordinary stimulus sooner rather than later.

The resulting surge in euro zone yields had also helped the benchmark Treasury yield climb to two-month highs on Friday.

Japanese government bond (JGB) yields had also tracked the rise in their US and euro zone counterparts. Last week, however, the Bank of Japan stepped in and halted the move through a special debt-buying operation, intent on keeping yields anchored close to zero.

With US yields free to rise, the spread between 10-year Treasury and JGB yields is the widest it has been in two months, contributing to the US dollar's strength against the yen.

"JGB yields can't move at all after the BOJ came out and stopped the yield rise with brute force, leaving the door open for the US-Japan yield spread to widen," said Ishizuki at Daiwa Securities.

The next large cue for the currency market was seen coming from Fed's Yellen, due to make a semi-annual testimony before the US Congress on Wednesday and Thursday.

US dollar bulls are banking on Ms Yellen to retain her hawkish stance, emboldened by last Friday's relatively robust US non-farm jobs report.

The pound was little changed at US$1.2880. It was within reach of a two-week low of US$1.2855 plumbed overnight after a run of lacklustre data cast doubt over the Bank of England's recent warnings that it is on the verge of raising borrowing costs.

BOE deputy governor Ben Broadbent is due to speak later in the day, giving investors a chance to hear the views of an interest-rate setter's first public comments since a narrow vote to keep rates unchanged last month.

The Australian dollar was flat at US$0.7606 while the New Zealand dollar slipped 0.3 per cent to US$0.7254.

REUTERS

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