* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(New throughout)
By Kate Duguid
NEW YORK, Aug 14 (Reuters) - The Japanese yen and U.S.
dollar index were higher on Wednesday after the U.S. Treasury
bond yield curve inverted for the first time since 2007 and
investors, gripped by fear of a looming global recession, fled
to the safety of perceived safe-haven assets.
An inversion of the yield curve - when the spread between 2-
and 10-year Treasury yields US2US10=TWEB falls below zero - is
an indicator of coming recession. The chill the inverted curve
sent through global markets was compounded by weak data from
China and Germany and waning optimism about progress reported in
U.S.-China trade talks on Tuesday.
The yen JPY= , already stronger on the day, was boosted by
the inversion and was last trading up 0.74% at 105.93, though
still off a 1-1/2-year high - excepting a flash crash in January
- hit on Monday.
"There is plenty of doom and gloom to spread across the
globe," said John Doyle, vice president for dealing and trading
at Tempus Inc in Washington. The U.S. yield curve "is a major
recession indicator. Germany, Italy and the UK are likely headed
for a recession. Today's Chinese data was shockingly bad."
China's industrial output rose in July at the slowest pace
in more than 17 years, official data showed on Wednesday, the
latest sign that trade pressure has hit demand in the world's
second-largest economy. Elsewhere, slumping exports sent
Germany's economy into reverse in the second quarter.
On Tuesday, the dollar jumped versus the yen after U.S.
President Donald Trump backed off his Sept. 1 deadline for
imposing 10% tariffs on remaining Chinese imports, delaying
duties on cellphones, laptops and other consumer goods.
Those gains were reversed overnight, however, as skepticism
about the progress began to weigh.
"I thought yesterday's risk-on move was going to be
short-lived, which looks to be right," Doyle said. "Reopening
talks with China is a good step, but there has not been any real
progress in months, so I think markets are starting to discount
efforts by the U.S. or China to de-escalate because recent
history has shown that little comes from it."
The dollar index .DXY , a measure of the dollar against a
basket of currencies, was 0.17% higher in mid-afternoon trade at
97.978. While an inverted yield curve may have raised fears
about the U.S. economy, fundamentals in other G10 countries look
worse, boosting the dollar's appeal.
China's offshore yuan CNH= gave up some of its earlier
gains on Wednesday as the weaker-than-expected economic data
tempered optimism generated by the U.S. decision to delay
tariffs.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
US Treasury curve inverts https://tmsnrt.rs/2YLaA5f
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>