February 8, 2017 / 7:41 PM / 6 months ago

RPT-FOREX-Dollar down as U.S. Treasury yields fall

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* Yen gains on global political uncertainty

* Euro up vs dollar, but outlook down overall

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 8 (Reuters) - The dollar fell on Wednesday after two days of gains, pressured by the decline in U.S. Treasury yields as investors have priced out a March rate hike by the Federal Reserve amid uncertainty about President Donald Trump's economic policies.

Joe Manimbo, senior market analyst at Western Union Business Solutions, said the drop in yields reflected investor frustration about the Trump administration's lack of details on its stimulus agenda.

Concerns about the impact on the world economy of Trump's protectionism and immigration policy have also undermined the greenback, along with the new administration's hints that it would prefer a weaker dollar.

Manimbo also said the perception that a U.S. rate hike is off the table over the first quarter of the year has also weighed on the U.S. currency and pushed Treasury yields lower.

The safe-haven yen, meanwhile, rose amid concerns around global political risks in Europe with the onslaught of elections this year in France, Germany, Netherlands, and possibly Italy.

The euro recovered against the dollar on Wednesday from more than one-week lows, on short-covering after days of losses. But its fortunes over the last few days have been largely tied to developments in France's looming presidential elections.

"The French political noise has brought the euro down and that has given the dollar a reprieve," said Gavin Friend, a strategist with National Australia Bank in London.

"Markets know that if Trump was to come out and start talking about tax reform and infrastructure spending, the dollar would go up. The dollar rose a long way at the end of last year, it has come back, now we are sitting around waiting for the next steer."

In late morning trading, the dollar index fell 0.2 percent to 100.10, as the greenback slid 0.6 percent to 111.94 yen.

The euro was down 0.3 percent against the yen at 119.69 yen , but rose 0.2 percent versus the dollar to $1.0702 .

Uncertainty about the two rounds of the French presidential election on April 23 and May 7 drove the premium that investors demand for holding French over German government debt to its highest in more than four years.

Opinion polls show Centrist Emmanuel Macron slightly ahead of conservative Francois Fillon in the first round, but behind far-right National Front leader Marine Le Pen, who has vowed to pull France out of the euro zone and hold a vote on its membership in the European Union.

Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Patrick Graham in London; Editing by Tom Brown

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