* Dollar firms against euro on rising U.S. yields
* Traders eye Fed rate hike sooner than anticipated
* Dollar falls against yen on safe-haven bids
(Updates prices, adds analyst comments)
By Sam Forgione
NEW YORK, June 10 The dollar extended gains
against the euro on Tuesday on expectations that the Federal
Reserve could raise U.S. interest rates sooner than previously
expected, but fell against the yen on safe-haven demand for the
Traders said that strong U.S. economic data, including the
government's nonfarm payrolls report last Friday showing
employment returned to pre-recession levels, supported the view
that the Fed could take a more hawkish stance on tightening
monetary policy at its meeting next week.
Traders' bracing for potential signs of a Fed rate hike
earlier than forecast helped push U.S. government bond yields
higher, which in turn drew demand for dollars.
"As you get stronger labor market data, stronger activity
data, the risk is the market will start pricing in an earlier
than expected timing of the first rate increase," said Ian
Gordon, FX strategist at Bank of America Merrill Lynch in New
Expectations for strong U.S. retail sales data on Thursday,
in a week of scarce economic data, bolstered views of a Fed rate
hike earlier than previously anticipated, traders said. Traders
currently expect the Fed to hike rates in the second half of
2015, based on U.S. short-term interest rate futures.
Upbeat Commerce Department data on Tuesday showing U.S.
wholesale inventories rose 1.1 percent in April, beating
economists' expectations for a 0.5 percent gain, supported that
Traders have said signs of a rate hike are positive for the
dollar, since higher U.S. bond yields encourage capital flows
into Treasuries. The benchmark 10-year Treasury note
was last down 6/32 in price to yield 2.638 percent. Yields hit a
one-month high of 2.651 percent.
The U.S. dollar index, which measures the greenback
against a basket of six major currencies, was last up 0.18
percent at 80.799, pulling further away from a near two-week
trough of 80.240 touched last Friday. The dollar was up 0.23
percent against the Swiss franc to trade at 0.8991 franc.
The euro was last down 0.35 percent against the
dollar at $1.3545 but was still higher than a four-month low of
$1.3503 hit last Thursday after the European Central Bank
announced its monetary stimulus measures.
Traders said the ECB's move and the potential for further
stimulus could continue to weigh on the euro.
"There will be an even more heightened sense of the
potential for a move in the ECB ... and that logically should
keep pressure on the euro," said Richard Scalone, co-head of
foreign exchange at TJM Brokerage in Chicago.
The dollar was last down 0.18 percent against the yen
, however, to trade at 102.32 yen. Traders said the
downturn in Japanese stocks drove some demand for the safe-haven
yen. Tokyo's Nikkei average closed down 0.85 percent on
(Reporting by Sam Forgione; Additional reporting by Patrick
Graham in London; Editing by James Dalgleish)