FOREX-Dollar falls to two-month low versus euro, yen firmer
* Yen firm as stocks drop, emerging currencies sell off
* Near-term focus on Fed minutes due Wednesday
* New Zealand dollar slides 1 percent against dollar, yen
By Anirban Nag
LONDON, Aug 20 (Reuters) - The dollar hit a two-month low against the euro on Tuesday, tracking a drop in Treasury yields, as investors awaited clarity on when the Federal Reserve would scale back its stimulus.
The dollar also fell against the yen and the Swiss franc, with investors choosing these safe-haven currencies as global shares retreated and emerging market currencies endured another wave of selling.
In thin trade, the euro rose 0.5 percent to $1.34065, its highest in two months as the 10-year yield premium U.S. Treasuries offer over German Bunds narrowed.
"This move up in the euro is due to a squeeze in positions," said Mankash Jain, head of FX and Investment Management, at Solo Capital, a London based hedge fund.
"The big players are missing and volumes are nearly 50 percent lower than we saw in April so price moves can get exaggerated. To us, any dip in the dollar offers a buying opportunity, especially against the yen, the Swiss franc, the euro and the pound."
Average daily turnover of spot, outright forwards, non-deliverable forwards, swaps, FX options and currency swaps totalled $2.55 trillion in April in the UK, up 26 percent from October 2012, a recent Bank of England survey.
Investors are awaiting the minutes of the Fed's July meeting due on Wednesday, seeking clues to whether the central bank will pare back its bond-buying in September.
Anticipation of Fed "tapering" saw 10-year Treasury yields hit 2.90 percent on Monday, their highest in two years. Yields were down 10 basis points on Tuesday, pushing the dollar index, to which it is closely correlated, down 0.3 percent to 81.008.
The yen was up 0.3 percent against the dollar at 97.27 yen, but its gains were more pronounced against growth-linked currencies such as the Australian and New Zealand dollars.
Recent weakness in global stocks along with a selloff in emerging market currencies due partly to expectations the Fed could start scaling back its monetary stimulus as early as next month, have supported the Japanese currency.
"Investors are risk averse going into the Fed minutes and until they get a clear direction we are likely to see these conditions prevail," said Simon Derrick, head of currency research at Bank of New York Mellon.
"Even dollar/yen has been hit by these risk-averse conditions," he added. "Some of the Japanese investors who have been buying overseas bonds may have turned cautious."
The New Zealand dollar was also down 1 percent against the dollar at $0.7975 after the central bank there announced home lending restrictions and said the currency was overvalued.
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