* Dollar on back foot after early gains
* Slowing recovery momentum, plunging yields hurt US dollar
* Euro consolidates after speculators build record long
positions
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Hideyuki Sano
TOKYO, Aug 3 (Reuters) - The U.S. dollar gave up brief early
gains on Monday as mounting concerns about a slowing U.S.
economic recovery from the coronavirus pandemic hobbled the
currency after a brief rebound late last week.
The euro traded almost unchanged at $1.1768 EUR= , coming
off a low of $1.1741 touched earlier in the session, though it
is still more than a cent below Friday's two-year high of
$1.1908.
The common currency hit a speed bump on some technical signs
of being over-bought in the near-term, and with speculators'
long positions hitting a record level, said Minori Uchida, chief
currency analyst at MUFG Bank.
"But the dollar's decline is likely to continue. Real U.S.
interest rates are declining even as the country is running a
big current account deficit, a situation we hadn't have for a
long time," he said.
U.S. bond yields have fallen to their lowest level since the
pandemic-induced market turmoil in March, with the 10-year rate
US10YT=RR slipping to near 0.50%, undermining the yield
attraction of the dollar.
U.S. bonds looked even less attractive when adjusted for
inflation expectations, with the yield on inflation-protected
U.S. 10-year Treasuries US10YTIP=RR falling to a record low
below minus 1%.
The dollar changed hands at 105.90 yen JPY= , giving up
early gains to 106.44, which traders saw as an extension of
Friday's rebound from 4-1/2-month lows of 104.195 triggered in
part by month-end buying.
Investors have reasons to worry about the U.S. outlook as
policymakers have so far struggled to clinch a deal to pump more
money into the world's largest economy even as an expanded
unemployment benefit, worth about $75 billion per month and
accounting for nearly 5% of personal income, expired on Friday.
White House Chief of Staff Mark Meadows said on Sunday he
was not optimistic on reaching agreement soon on a deal for the
next round of legislation to provide relief to Americans hit
hard by the coronavirus outbreak. A growing U.S. fiscal deficit to finance the stimulus
prompted Fitch Ratings to revise the outlook on the United
States' triple-A rating to negative from stable. While the market has not shown immediate reaction to the
downgrade, it still marked a sharp contrast with the European
Union, which got a lift from Standard and Poor's decision to
upgrade its rating outlook to positive from stable. on the euro has improved after European Union
leaders agreed last month to a 750 billion euro economic
recovery fund - while also taking on debt jointly in a major
boost to regional cooperation.
The deal could be conducive to a shift to the euro, at the
expense of the dollar, among managers of official currency
reserve, said Zach Pandl, co-head of global foreign exchange at
Goldman Sachs in New York.
"Prospects for the euro in reserve portfolios are looking
brighter. In particular, the EU's new Recovery Fund addresses
two fundamental problems that have held back the
internationalization of the single currency - macroeconomic
instability due to limited fiscal transfers, and a shortage of
highly-rated liquid bonds." he said.
Some traders speculate the dollar's decline since late last
month has been so big that it may have been driven in part by
reallocation of official reserves.
Traders are also keeping an eye on intensifying tensions
between Washington and Beijing on many fronts, including trade,
technology and geopolitics. Over recent days, U.S. President
Donald Trump has threatened to ban TikTok, a popular video app
run by China's ByteDance.
Secretary of State Mike Pompeo said on Sunday Trump will
take action shortly on Chinese software companies that are
feeding data directly to the Beijing government, posing a risk
to U.S. national security. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Real U.S. bond yields https://tmsnrt.rs/39P55op
Speculators' net euro long positions https://tmsnrt.rs/2Ph71fM
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