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FOREX-Dollar holds advantage over low-yielders, risk currencies slip back

Published 02/03/2021, 05:38
Updated 02/03/2021, 05:42
© Reuters.

© Reuters.

* Dollar firm vs euro, yen on brighter U.S. economic outlook
* ECB more cautious about higher bond yields
* ISM survey shows U.S. manufacturing at 3-yr high
* China regulator says to take proactive steps on housing
bubble
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, March 2 (Reuters) - The dollar stood firm against its
low-yielding peers on Tuesday on bets of a faster economic
recovery in the United States and expectations that the U.S.
Federal Reserve will show greater tolerance of higher bond
yields than other central banks.
Risk sensitive currencies stepped back from sharp gains the
previous day, as China's top financial regulator discussed the
need to proactively take measures to stabilise the housing
market, while expressing wariness of the risk of bubbles
bursting in foreign markets. The dollar index rose 0.2% to 91.176 =USD , hitting a
three-week high to edge closer to its February peak of 91.600.
The U.S. currency rose to as high as 106.93 yen, its highest
since late August, and last stood at 106.78 yen JPY= while the
euro dipped 0.2% to $1.2026 EUR= , touching its lowest level in
almost a month.
"The jury is still out on whether the bond market sell-off
is over. But people expect the Bank of Japan to keep a tab on
bond yields, which means there will be a bigger yield premium
for the dollar," said Kazushige Kaida, head of FX sales at State
Street Bank's Tokyo Branch.
The euro was under pressure as top officials from the
European Central Bank sounded alarm over rises in bond yields.
President Christine Lagarde said the ECB will prevent a
premature increase in borrowing costs for firms and households.
Policymaker Francois Villeroy de Galhau was even more
explicit, saying some of the recent rises in bond yields were
unwarranted and that the ECB must push back using the
flexibility embedded in its bond purchase programme.
Traders were quick to sense the marked difference in tone
between the ECB and the Federal Reserve.
Richmond Federal Reserve President Thomas Barkin said on
Monday the uptick in long-term bond yields so far seems to
suggest an adjustment to stronger growth and inflation outlook.
Atlanta Fed President Raphael Bostic said last week that
bond yields remain comparatively low, while Federal Reserve
Chair Jerome Powell has not appeared unduly concerned by rising
bond yields.
"Central banks continue to take diverging views on the
signals sent by the recent rise in yields. The U.S. Fed is
taking it as a positive signal," Tapas Strickland, director of
economics and markets at National Australian Bank in Sydney,
said in a note.
The U.S. economic recovery is reckoned to be on firmer
ground, bolstered by prospects of a $1.9 trillion relief package
and successful rollouts of COVID-19 vaccinations.
A survey by the Institute for Supply Management (ISM)
released on Monday showed U.S. manufacturing activity increased
to a three-year high in February amid a surge in new orders.
On the other hand, the Australian dollar dropped as much as
0.45% before erasing some losses to trade at $0.7766 AUD=D4 ,
after the Reserve Bank of Australia re-committed to keeping
interest rates at historic lows. While keeping rates at 0.1%, it emphasised that its targets
for employment and inflation were not likely to be met until
2024 at the earliest.
Elsewhere, bitcoin also jumped back in tandem with gains in
risk assets, trading at $49,129 BTC=BTSP and pulling away from
Sunday's three-week low of $43,021.

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