* Euro hovers within sight of 4-month low vs dollar
* Dollar supported by rise in U.S. bond yields
* U.S.-euro zone yield gap widens in dollar's favour
By Masayuki Kitano
TOKYO, June 11 The euro languished near a
four-month low on Wednesday, after the dollar's yield advantage
over the single currency widened in the wake of upbeat U.S.
economic data and the European Central Bank's monetary easing.
A rise in U.S. bond yields on speculation that the U.S.
Federal Reserve could raise interest rates sooner than
previously expected helped support the greenback this week.
The euro eased 0.1 percent on the day to $1.3529,
nearing a four-month low of $1.3503 set last Thursday shortly
after the ECB cut interest rates to record lows and took its
deposit rate into negative territory for the first time.
"The only theme is a widening in U.S.-European yield
differentials," said Daisuke Karakama, chief market economist
for Mizuho Bank in Tokyo, referring to the driver of the euro's
declines over the past couple of days.
According to Thomson Reuters data, the yield spread between
two-year U.S. Treasury yields and two-year German
government bond yields has risen to more than 37
basis points this week, the fattest in seven years.
A strong U.S. jobs report on Friday, and hawkish comments
from St. Louis Federal Reserve bank president James Bullard on
Monday has given a lift to U.S. bond yields this week and has
helped buoy the greenback against the euro.
Even if the euro were to fall in the near term, it remains
to be seen whether such weakness will be sustained, Karakama
"I think there could eventually be a return to undesired
strength in the currency," he said.
Although the single currency has fallen about 1.5 percent
versus the dollar this year, market players have been surprised
by its resilience, which has been attributed to factors such as
the euro zone's current account surplus as well as inflows and
repatriation into euro zone assets.
The dollar index, which measures the greenback's value
against a basket of major currencies, last stood at 80.870
. The dollar index had touched a four-month peak of 81.02
Against the yen, the dollar held steady at 102.38 yen
. A focal point for the yen this week is the Bank of
Japan's two-day policy meeting on June 12-13.
The BOJ is seen likely to keep monetary policy steady at its
policy decision due on Friday and may slightly revise up its
assessment on overseas growth, signalling confidence that the
economy is on course to meet its inflation target next year
without additional stimulus.
(Editing by Eric Meijer)