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FOREX-Dollar struggles after Tillerson departure strikes down recovery

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* Dollar struggles broadly, Tillerson's dismissal dampensmood

* Same again for currencies and dollar after Cohn's exitlast week

* Reaction to White House personnel changes seen moderating

By Shinichi Saoshiro

TOKYO, March 14 (Reuters) - The dollar wallowed against theyen and other major currencies on Wednesday after the suddendismissal of U.S. Secretary of State Rex Tillerson killed off anearlier bounce in the currency.

U.S. President Donald Trump fired Tillerson on Tuesday aftera series of rifts over policy on North Korea, Russia and Iran,replacing his chief diplomat with loyalist CIA Director MikePompeo. urn:newsml:reuters.com:*:nL1N1QV0JE

It was a repeat performance for the currency market and thedollar, which declined a week ago when the resignation of WhiteHouse economic advisor Gary Cohn undermined investor confidencein the greenback.

The dollar was down 0.15 percent at 106.440 yenJPY= ,having slipped overnight from a two-week high of 107.300 reachedafter wariness over a political controversy in Japan wanedslightly.

The greenback also lost a bit of traction after FebruaryU.S. inflation data out on Tuesday matched expectations,suggesting the Federal Reserve remained on track to raiseinterest rates at a gradual pace. urn:newsml:reuters.com:*:nLNSDEEE8Q

Masafumi Yamamoto, chief forex strategist at MizuhoSecurities in Tokyo, said comings and goings in the White Housewere becoming something of an everyday occurrence and thatdollar's reaction was likely to become more limited each time.

"For the dollar to rise above 107 yen again, it may need aclarification of the ongoing political 'scandal' in Japan inaddition to a hint by the Fed at this month's meeting that itmight accelerate the pace of rate hikes," Yamamoto said.

The yen had risen against the dollar at the start of theweek as a political crisis engulfed Japanese Prime MinisterShinzo Abe and his close ally, Finance Minister Taro Aso.

The Japanese currency advanced as the controversy overalleged cronyism in a government land sale raised doubts aboutAbe's ability to continue pursuing his Abenomics policies, whichinclude aggressive monetary easing.

The Fed holds a two-day policy meeting starting on March 20and the central bank is widely expected to raise interest ratesfor the first time this year.

Tracking a decline in U.S. debt yields, the dollar indexagainst a basket of six major currencies slipped to a six-daylow of 89.565.

The index managed to cling above 89.407, the low point forMarch set last Wednesday in the wake of Cohn's exit.

"The dollar has not declined very much despite recentnegative factors as sentiment is showing signs of recoveringglobally, with words like Goldilocks being mentioned again,"said Shusuke Yamada, chief Japan FX strategist at Bank ofAmerica Merrill Lynch.

The February U.S. non-farm payrolls report released onFriday pointed towards not too hot nor too cold "Goldilocks"conditions. The report showed a strong increase in employmentbut at the same inflation fears were moderated by a slowdown in earnings growth.

The euro extended an overnight bounce and was up 0.15percent at $1.2407EUR= , its highest in six days.

The pound rose about 0.2 percent to a two-week high of$1.3996.

The Australian dollar added 0.1 percent to $0.7870AUD=D4 and in reach of a two-week peak of $0.7898 scaled the previousday on robust business indicators. (Reporting by Shinichi Saoshiro; Editing by Sam Holmes and EricMeijer) ((shinichi.saoshiro@thomsonreuters.com; Reuters Messaging:shinichi.saoshiro.reuters.com@reuters.net+813-6441-1774))




Referenced Symbols:EUR

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