FOREX-Dollar slips as bond yields drop and investor sentiment strengthens

* Dollar heads low, commodity currencies rally
* Sterling edges higher ahead of UK budget
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Saikat Chatterjee
LONDON, March 3 (Reuters) - The U.S. dollar fell on
Wednesday as investor sentiment improved and government bond
yields extended their retreat, while commodity-linked currencies
such as the Australian and Canadian dollars rose.
The lower U.S. bond yields also sapped some of the dollar's
appeal among low-yielding currencies, with the yen and Swiss
franc recovering from multi-month lows overnight.
Bonds have been at the centre of a storm in markets in
recent weeks, following a jump in yields globally. Investors
were betting an economic recovery would lift inflation and lead
central banks to normalise monetary policy as economies recover
from the COVID-19 pandemic.
Global stocks dropped from near record highs and prices of
commodities wobbled.
But this week has seen some calm return to the market, with
yields dropping and stocks rising.
An index of the dollar =USD against six of its major peers
slipped to 90.971 after dropping back from a nearly one-month
high overnight.
Analysts said they expected Federal Reserve Chair Jerome
Powell to reiterate on Thursday recent comments from fellow
policymakers that any rises in rates would be gradual and that
the U.S. economy was still far from the Fed's goals.
"The Fed is rightly more concerned about the speed of the
move rather than the move higher in yields. The comments should
help to dampen volatility in the bond market and the U.S.
dollar's upward momentum in the near-term," MUFG analysts said
in a note.
The Aussie AUD=D3 rose 0.1% to $0.7828, building on gains
of about 0.7% the previous two days, after data showed the
Australian economy grew much faster than expected in the fourth
quarter. The Norwegian crown NOK=D3 EURNOK=D3 , another
commodity-linked currency, traded mostly higher against the
dollar and the euro after advancing about 1% in each of the past
two sessions.
The euro was little changed at $1.2086 EUR=EBS after
rising more than 0.3% in the previous session, when it rebounded
from an almost one-month low below $1.20.
European Central Bank board member Fabio Panetta said the
bloc's monetary authority should expand bond purchases or even
increase the quota earmarked for them if needed to keep yields
down. "Equity market reaction will be one of the key determinants
of the impact of this move in global rates on FX markets," said
Shinichiro Kadota, senior currency strategist at Barclays in
Tokyo.
The lull in volatility could prove fleeting if an improving
U.S. economy re-ignites bond selling, with closely watched
monthly payroll figures due on Friday. Sterling traded 0.1% higher at $1.3973 GBP=D3 before the
UK budget' release, due at 1230 GMT.

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