FOREX-Dollar gains as U.S. recovery bets stoke Treasury yields

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Iain Withers
LONDON, March 30 (Reuters) - The dollar gained against major
currencies on Tuesday and climbed to a one-year high against the
yen, as accelerating U.S. vaccinations and plans for a major
stimulus package stoked inflation expectations and Treasury
yields.
The safe-haven greenback found support across the board as
investors also digested the fallout from the collapse of highly
leveraged investment fund Archegos Capital. The dollar index rose above the 93 mark and was last up
around a quarter of a percent at 93.122, its highest level in
four months. =USD
The greenback rose above 110 yen, a level not seen since
March last year. JPY=EBS It is on track for the best month
since late 2016, with the end of Japan's fiscal year this month
driving up dollar demand as companies square their books.
Analysts said the yen was also vulnerable to higher
inflation expectations in the U.S. than Japan and a rise in
long-term U.S. yields.
U.S. 10-year Treasury yields rose to 14-month highs on
Tuesday, the day before President Joe Biden is set to outline
how he would pay for a $3 trillion to $4 trillion infrastructure
plan. "USD/JPY has by far the highest correlation amongst G10
currencies with long-term US yields," said Lee Hardman, currency
economist at MUFG in a note.
"Upward pressure on long-term US yields is expected to be
supported by another fiscal stimulus policy announcement from
the Biden administration."
The euro also weakened on the day to $1.17335, its lowest
level since November. EUR=EBS
Tougher coronavirus curbs in France and Germany have dimmed
the short-term outlook for the European economy, while a
widening spread between U.S. and German bond yields is adding
pressure on the single currency.
The monthly U.S. non-farm payrolls report will be closely
watched at the end of this week, with Federal Reserve
policymakers so far citing slack in the labour market for their
continued lower-for-longer stance on interest rates.
"In a week when the market is feeling so optimistic about
the forthcoming payrolls release, it seems very likely that the
greenback will find strong support," Rabobank currency
strategist Jane Foley wrote in a report.
However, "the market is in danger of pricing in too much
inflation risk," meaning "we see scope for the USD to soften in
the months ahead," the report said.

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