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US dollar pressured by falling yields


THE US dollar edged up on Wednesday but remained under pressure as an inversion of a part of the US treasury yield curve caused concern about a possible US recession.

The greenback has enjoyed months of unrivalled performance against its peers but that could be undermined by growing concern about slowing US growth.

Those worries on Tuesday saw two-year yields rising above those of longer-dated five-year notes for the first time in more than a decade.

Market voices on:

The so-called "inversion" of the yield curve to many investors sounds an alarm about a looming US economic slowdown.

"In the initial phase of the inversion of the yield curve markets are worried and react more aggressively to weak data than to strong data," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

"I think the dollar can be in correction-mode in a yield-curve inversion environment," he added.

Against a basket of six rivals, the US dollar edged up 0.1 per cent to 97.103, trimming this week's losses to 0.2 per cent. It was 0.6 per cent off a 17-month peak of 97.693 touched on Nov 12. The recent weakness in the US dollar comes against the backdrop of a temporary truce in the US-China trade conflict agreed over the weekend which has bolstered investor confidence in riskier currencies versus the safe-haven greenback.

The US dollar has been under pressure since Federal Reserve chairman Jerome Powell said last Wednesday that US interest rates were nearing neutral levels, which markets interpreted as signalling a slowdown in the pace of rate hikes.

The euro edged down 0.1 per cent to US$1.1328. Without a resolution on the European Union's dispute with Italy over its proposed budget, or euro-specific positive developments, euro/US dollar is likely trade in a range of US$1.12 to US$1.16, said analysts at Commerzbank.

The Australian dollar slumped more than 0.7 per cent against the greenback as disappointing economic data further dimmed the chance of a rise in rates. The Aussie moved sharply off a four-month top of US$0.7394 hit early in the week.

The Aussie, often viewed as a barometer of Chinese growth, had risen early in the session after China's Commerce Ministry said in a statement that a Chinese trade and economics delegation had held a successful meeting with the United States.

Against the yen, the US dollar rose 0.2 per cent to 112.97 yen, clawing back some of the previous session's losses, when it booked its biggest one-day drop since July 20.

On Tuesday, the greenback shed nearly 0.8 per cent against the yen, which acts as a safe haven in times of geopolitical and financial turmoil as Japan is the world's biggest creditor nation. REUTERS