FOREX-Dollar dips, off 3-1/2 month highs as Treasury yields stabilize

* Dollar index off 3-1/2-month highs
* Eyes on Treasury auctions, Fed meeting
* Risk currencies rise
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

(Updates prices, adds analyst's comment)
By John McCrank
New York, March 9 (Reuters) - The dollar on Tuesday backed
off its 3-1/2-month high as U.S. Treasury yields stabilized
ahead of key inflation data and Treasury auctions this week,
boosting riskier currencies such as the pound, Australian dollar
and Kiwi dollar.
The save-haven dollar was 0.46% lower, at 91.95, against a
basket of six major currencies, after hitting a 3-1/2-month high
of 92.506 during Asian trading hours =USD .
U.S. 10-year Treasury bond yields US10YT=RR eased to
1.544% after reaching 1.613% on Monday, close to its 13-month
high. Yields had been rising on expectations that a
faster-than-expected economic rebound would spark a jump in
inflation with President Joe Biden expected to sign a $1.9
trillion coronavirus aid package as soon as this week.
"We saw yields give back some ground after we had some
soothing remarks from Treasury Secretary Janet Yellen
downplaying prospects of runaway inflation," said Joe Manimbo,
senior market analyst at Western Union Business Solutions.
On Monday, Yellen said Biden's aid package would fuel a
"very strong" U.S. economic recovery, and that there are tools
to deal with inflation if the economy runs too hot. But some market participants were wary yields could rise
further this week as the market digests a $120 billion auction
of 3-, 10-, and 30-year Treasuries, especially after last week's
soft auction and a 7-year note sale that saw a spike in yields.
"I'm not convinced that these gyrations are over," said Marc
Chandler, chief market strategist at Bannockburn Global Forex.
"I want to see some follow-through to persuade me."
U.S. consumer price index and producer price index data, due
on Wednesday and Friday, will also be closely watched.
"Stability is likely to remain the theme of the day ahead of
the UST auctions and the US inflation release tomorrow, which
are the near-term risks for FX markets," ING strategists said in
a daily note.
Commodity-linked currencies benefited from the pull-back in
yields, with the Australian dollar AUD= gaining 0.9% to
$0.7718 and New Zealand dollar NZD= gaining 0.65% to $0.7174.
The economic outlook has brightened globally as COVID-19
vaccine rollouts speed up in some countries and also due to the
U.S stimulus package, the Organisation for Economic Cooperation
and Development (OECD) said, hiking its forecasts. The euro EUR=EBS rose 0.47% to $1.19035 and sterling
GBP=D3 gained 0.58% to $1.3901.
Looking forward, traders are focused on the U.S. Federal
Reserve's two-day meeting next week. Expectations are low that
the central bank will announce major policy changes after Chair
Jerome Powell last week did not express concern about rising
bond yields.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates https://tmsnrt.rs/2RBWI5E
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>