* Dollar index on track for worst weekly fall since Feb 2016
* Swiss franc strongest vs dollar since June 2015
* Japanese govt reappoints Kuroda as BOJ governor as expected
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Feb 16 (Reuters) - The dollar slipped to its lowest levels in more than three years against a basket of currencies on Friday, headed for its biggest weekly loss in two years as negative sentiment offset any support the greenback could take from rising Treasury yields.
The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back easy monetary policy.
Traders’ confidence in the dollar has also been eroded by mounting worries over the United States’ twin budget and current account deficits, with the latter projected to balloon to near $1 trillion in 2019 amid a government spending splurge and hefty corporate tax cuts.
Extending the previous day’s losses, the dollar’s index against a group of six major currencies fell to 88.253, the lowest since December 2014. The index was on track to lose around 2 percent on the week in its largest decline since February 2016.
Those falls have come as U.S. Treasury yields have hit four-year highs, with U.S. inflation coming in stronger than expected in January, bolstering expectations that the Federal Reserve could increase interest rates as many as four times this year.
That has left many analysts puzzled, as higher Treasury yields are normally associated with a stronger dollar.
Chris Turner, head of currency strategy at ING in London, said the breakdown of the traditional relationship between U.S. Treasuries and the dollar, particularly against the yen, could be explained by the fact that yields are rising on the back of worries over the budget deficit rather than inflation.
“This year’s rise in Treasury yields has been driven more by the term premium - that’s a risk premium investors require for holding long-term debt,” Turner said. “International investors are requiring a concession in the dollar to hold U.S. assets because of the fiscal risk.”
“Also, the U.S. Treasury is happy to talk fast and loose about the dollar, which I’m sure hasn’t gone unnoticed by investors and other central bankers,” Turner added.
The dollar slipped to as low as 105.545 yen in Asian trading, its weakest in 15 months. It was on track for a weekly loss of almost 3 percent.
The reappointment of Haruhiko Kuroda as Bank of Japan governor and the nomination of BOJ executive director Masayoshi Amamiya and Waseda University professor Masazumi Wakatabe as deputy governors had little impact on the yen, although the proposed leadership trio were seen certain to keep the central bank on an ultra-loose policy path.
The euro climbed to a three-year top of $1.2556 and was poised to gain 2.4 percent this week.
The Swiss franc reached 0.9190 franc per dollar, its strongest since June 2015.
“It’s difficult for the market to see the dollar rebounding, especially as decent U.S. fundamentals seem to be providing no support for the currency,” said Shin Kadota, senior strategist at Barclays in Tokyo. (Reporting by Jemima Kelly; Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Toby Chopra)