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* Dollar index nudged off 2-week highs
* Global bond yields fall on dovish cbanks, fading trade optimism
* Swedish crown firms as Rijksbank holds policy tightening line
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Updates throughout, changes byline, dateline)
By Sujata Rao
LONDON, July 3 (Reuters) - The dollar slipped to a one-week low against the Japanese yen on Wednesday, undermined by the steady fall in U.S. Treasury bond yields, fading optimism over the Sino-U.S. trade deal and the possibility of fresh tariff hostilities with Europe.
Meanwhile the Swedish crown briefly jumped to a 2-1/2 month high versus the euro after the central bank said it was on track to tighten policy by early 2020.
Against a basket of six major currencies, the dollar pulled back from two-week highs scaled on Tuesday as U.S. bond yields extended the previous day’s heavy fall, with 10-year yields hitting 2-1/2-year lows below 1.94%.
“Traders don’t want to take big bets before the U.S. jobs data with the Swedish central bank providing the only surprise for currency markets by signalling a confident economic outlook,” said Lauri Hallika, a fixed income and currency strategist at SEB in Stockholm.
Sweden’s central bank held its line on policy tightening by year-end or early-2020, noting a “good” inflation and economic outlook.
The comments prompted traders to unwind a five basis point probability of a rate cut in the bond futures market, pushing the currency higher.
The Swedish crown rallied to 10.4890 against the euro and into positive territory versus the dollar.
The yen firmed 0.23% to the dollar at 107.6 yen as investors grew more sceptical about the possibility of a speedy resolution to the trade war, especially given U.S. President Donald Trump’s comments that any deal would have to be tilted in favour of the United States.
The global investor spotlight will move to U.S. non-farm payrolls data due on Friday, which economists expect to have risen by 160,000 in June, compared with a 75,000 May increase.
Expectations have grown that the Fed will embark on its first rate cut in a decade at a policy review this month. Markets are assigning a more than a 70% probability of a quarter point rate cut at its next policy meeting in July.
“Two movers today are the yen, which is the risk-off safe haven, and the pound which keeps heading lower,” Colin Asher, senior economist at Mizuho, said, adding that it had seemed “like Carney is potentially teeing up a rate cut.”
Sentiment was also dented by Washington’s threat of tariffs on $4 billion of additional European Union goods in a long-running dispute over aircraft subsidies.
Currencies are also under pressure from signs that more and more central banks are set to ease monetary policy to combat economic slowdown.
“The dovish stuff from central banks is pushing yields down across the board. It’s starting to look like the weakness in manufacturing is starting to spread to the services sector and that’s an alarm bell, a sort of green light to central banks to ease policy,” Asher said.
The euro was little changed at $1.128 following a volatile session on Tuesday, when it swung between a low of $1.1275 and a high of $1.1322.
The common currency briefly received a lift on Tuesday after a media report that European Central Bank policymakers would not rush to cut rates at their July meeting. But it later slipped after IMF Managing Director Christine Lagarde, perceived as a policy dove, was nominated as the next ECB president.
“The Lagarde news is not expected to be a factor for the euro,” said SEB’s Hallika.
Reporting by Sujata Rao; Additional reporting by Saikat Chatterjee; Editing by Susan Fenton and Alexander Smith