FOREX-Dollar slides to 3-1/2-month low vs yen as yields seen declining

Mon May 19, 2014 3:29pm EDT

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(Updates prices, adds analyst quote, Fed comments)
    * Dollar/yen most sensitive to U.S. yields
    * Fed remarks viewed as dovish
    * U.S. 10-year yields rise, but seen inching lower

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 19 (Reuters) - The dollar fell to its lowest
in more than three months against the yen on Monday, pressured
by a declining trend in U.S. Treasury yields that may be due to
uncertainty about U.S. economic growth prospects.
    Mixed economic data and a generally dovish outlook from the
Federal Reserve have weighed on U.S. bond yields, tempering the
dollar's ability to sustain meaningful gains this year.
    On Monday, Dallas Fed President Richard Fisher and San
Francisco Fed President John Williams added to the dovish tone.
Both speakers participated in a panel in Dallas. 
    Fisher, known for his hawkish views on monetary policy, said
there have been positive aspects to the Fed's easy policy, while
Williams, a dove, acknowledged weakness in the U.S. housing
sector. Williams added that it's not appropriate for the Fed to
start raising interest rates until the second half of next year.
  
    "We generally agree with Williams' concerns about U.S.
housing, having argued that it is likely to be a drag on final
aggregate demand growth in 2014," said Thierry Wizman, global
interest rates and currencies strategist, at Macquarie in New
York.
    The dollar fell as low as 101.11 yen, the weakest
since early February. It was last at 101.32, down 0.2 percent.
The greenback's break below 101.20 yen was the first time since
November it has traded lower than its 200-day moving average,
which was at 101.17 yen. 
    "U.S. yields are still the main story," said Vassili
Serebriakov, currency strategist, at BNP Paribas in New York.
"The general feeling seems to be that the market is still
vulnerable to the downside in terms of yields."
    The dollar/yen pair is the most vulnerable to movements in
U.S. yields because it is where the market holds the largest
long positions on the greenback.
    Benchmark U.S. 10-year yields rose to 2.53
percent on Monday from 2.52 percent late Friday, but the broad
trend has been one of weakness. Last Thursday, 10-year yields
tumbled to six-month lows. 
    "Momentum in 10s (10-year notes)and 30s (30-year
bonds)remain constructive and we're reluctant to actively fade
the bullish price action," said Ian Lyngen, senior government
bond strategist, at CRT Capital in Stamford, Connecticut. 
    Overall, it has been a choppy period for currency markets,
hamstrung this year by a lack of clear differentiation between
the economic stories of Japan, Europe and the United States. 
    Growth is now moving at different rates, although official
borrowing costs in all three remain near rock bottom. Signs the
European Central Bank is preparing to loosen monetary conditions
even further knocked the euro back last week. 
    In late trading, the euro gained gained 0.2 percent to
$1.3712 after a volatile session on Friday. 
    BNP's Serebriakov said the euro's strength was just a result
of the dollar's broad weakness.

 (Editing by Chizu Nomiyama)
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