* Euro bounces off 2-1/2-month lows vs USD, on track for
* Drop in benchmark U.S. yields seen undermining dollar
* Dollar eases vs yen, hovers near Thursday's 2-month low
(Updates prices, adds comments)
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, May 16 The euro was back in
familiar territory against the dollar on Friday, having staged a
rebound from a 2-1/2-month trough as investors booked profits on
bearish positions ahead of the weekend.
The common currency rose 0.1 percent to $1.3718. It
had fallen as far as $1.3648 on Thursday, its lowest level since
late February, in response to data showing the euro zone grew
much less than expected at the start of the year.
The euro was down about 0.3 percent for the week at its
current levels, putting it on track for its second straight
"EUR/USD rebounded from the lows thanks to the sharp drop in
U.S. yields but we suspect that expectations of ECB easing will
keep the euro trading with a bearish bias," analysts at BNP
Paribas wrote in a note to clients.
Indeed, the euro has fallen roughly 2 percent since May 8
when European Central Bank (ECB) President Mario Draghi
convinced markets that the bank was ready to inject fresh
stimulus next month.
The disappointing growth figures on Thursday only served to
fuel those dovish expectations.
The euro eased 0.1 percent to about 139.17 yen,
not far from a 2-1/2-month low near 138.97 yen set on Thursday.
The dollar remained on the defensive versus the yen after
taking a hit on Thursday, when U.S. benchmark 10-year Treasury
yields fell to a six-month low of 2.473 percent,
undermining the greenback's appeal.
The dollar eased 0.1 percent to 101.46 yen, staying
close to a two-month low of 101.31 yen set on Thursday.
Below that trough, possible support for the dollar lies at
levels near 101.20 yen, which roughly coincides with a few
intraday lows touched in March as well as the dollar's 200-day
The greenback could come under renewed pressure versus the
yen in the near term, if the U.S. 10-year bond yield falls
further in the wake of its breach of a recent trading range,
said Satoshi Okagawa, senior global markets analyst for Sumitomo
Mitsui Banking Corporation in Singapore.
"If there is a clear break below 2.5 percent, a (dollar)
drop to levels below 101.00 yen will come into sight," he said.
The U.S. 10-year Treasury yield last stood at 2.491 percent
. With its drop this week, the U.S. 10-year Treasury
yield has fallen below a trading range of roughly between 2.6
percent to 2.8 percent that had held since early February.
To be sure, dollar buying interest on dips is likely to help
lend some support to the greenback, Okagawa said.
"Right now there are bids on the downside, so any fall (in
the dollar) tends to be slow. But that doesn't mean we're in a
situation where it is likely to rise," he added.
Japan's trade deficits are seen as a supportive factor for
the dollar versus the yen over the medium term, as they suggest
that net foreign exchange flows generated by the country's
exports and imports are tilted toward yen-selling.
The drop in U.S. yields on Thursday caught some by surprise.
Traders pointed to safety flows stemming from a sell-off in
Greek bonds that halted a rally in peripheral euro zone debt.
(Editing by Jacqueline Wong)