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FOREX-Dollar sags vs yen as U.S. yields drop, holds steady against euro and pound
December 29, 2016 / 12:47 AM / a year ago

FOREX-Dollar sags vs yen as U.S. yields drop, holds steady against euro and pound

* Dollar/yen sags after US yields fall to 2-week lows

* Wider yield spreads still support dollar vs euro

By Shinichi Saoshiro

TOKYO, Dec 29 (Reuters) - The dollar sagged against the yen early on Thursday as U.S. yields dropped overnight to two-week lows, but the greenback managed to hold steady against the euro and pound.

The dollar was down 0.2 percent at 117.070 yen, having come down from a high of 117.815 touched overnight.

Treasury yields fell in the wake of weaker-than-expected pending home sales data and a robust debt auction.

The euro was little changed at $1.0420 after losing 0.4 percent the previous day, during which it went as low as $1.0372.

“The dollar looks like it has run its course against the yen for now. But against the euro, the dollar still has room to gain as the pair is now trying to catch up to the widening between U.S. and German yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The spread between the 10-year U.S. Treasury and German bund yields is the widest on record stretching back to 1990.

The spread has been increasing recently on the divergence between European and U.S. central bank policy and outlooks for growth and inflation.

The common currency already hit a near 14-year low of $1.0352 last week and analysts expect it to eventually reach parity with the dollar next year.

Sterling was flat at $1.2229. The pound was in reach of a two-month low of $1.2201 set overnight amid fresh uncertainty over Britain’s Brexit negotiations.

The dollar index was down 0.15 percent at 103.150, but still in reach of a 14-year high of 103.650 struck last week.

The index has climbed to that level on expectations that Donald Trump’s incoming administration will boost U.S. growth through fiscal stimulus, which could be accompanied by monetary tightening and higher yields.

The Australian dollar was up 0.15 percent at $0.7188 .

Reporting by Shinichi Saoshiro; Editing by Eric Meijer

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