June 20, 2018 / 1:00 AM / a year ago

FOREX-Dollar steadies vs yen as U.S. yields come off lows, but capped by trade woes

* USD/JPY bounce from 8-day low, back above 110.00

* U.S. yields off 3-week lows as risk aversion eases

* Prospect of worsening U.S.-China trade feud still cap USD/JPY

* Euro sags after dovish-sounding ECB Draghi

By Shinichi Saoshiro

TOKYO, June 20 (Reuters) - The dollar steadied against the yen on Wednesday, as U.S. yields pulled back from lows hit on concerns about a worsening trade feud between Washington and Beijing, although persistent worries about the trade rift are likely to cap any greenback recovery.

The dollar was little changed at 110.08 yen following its retreat to an eight-day trough of 109.55 on Tuesday after U.S. President Donald Trump threatened to slap more tariffs on China, prompting an angry response from Beijing. Escalating tensions triggered risk aversion and caused a sell-off in global equities.

The yen is often sought in times of political tension and market turmoil.

The dollar managed to bounce back against the yen as a degree of calm returned to broader markets and Wall Street shares pared a bulk of their losses, while safe-haven U.S. Treasury yields climbed from three-week lows.

Better-than-expected U.S. housing data also nudged Treasury yields off their lows on Tuesday.

“The dollar has managed to stabilise versus the yen but its rise above 110.00 looks precarious as trade tensions linger in the background,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“The threat of a trade conflict is a theme that could eventually override tax cut-induced benefits the U.S. economy is experiencing at the moment.”

The euro was down 0.05 percent at $1.1584, shaky after slipping to a two-week low of $1.1528 overnight after European Central Bank President Mario Draghi called for a patient approach to European monetary policy at a forum in Portugal.

The dollar index against a basket of six major currencies stood at 95.026 after advancing to an 11-month peak of 95.296 on Tuesday amid the risk aversion.

“Along with the Swiss franc and the yen, the dollar is also a safe haven currency, although perhaps less so than the yen,” Kadota at Barclays said. “The dollar’s safe-haven status, however, could come under question as it has also become a high-yielding currency.”

The Australian dollar, considered sensitive to shifts in sentiment towards China, fell to a 13-month low of $0.7347 on Tuesday before pulling back slightly to $0.7386.

The Swiss franc was little changed at 0.9948 franc per dollar after gaining about 0.1 percent overnight.

The 10-year U.S. Treasury note yielded 2.896 percent after dropping to as low as 2.853 percent on Tuesday. (Reporting by Shinichi Saoshiro; Editing by Sam Holmes)

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