* Dollar springs back against low-yielding currencies
* Yen near four-month low as U.S. bond yields gain
* Risk-sensitive currencies supported
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Ritvik Carvalho
LONDON, Feb 17 (Reuters) - The dollar rose againstlow-yielding currencies on Wednesday, reaching a five-month highagainst the yen, as U.S. bond yields jumped on the prospects offurther economic recovery and a possible acceleration ininflation.
Bitcoin set a record high of $51,721, a day afterthe cryptocurrency rose to $50,000 for the first time. Thatbrought its total market capitalisation to more than $900billion, as traders bet on its further acceptance among majorcompanies.
The dollar's index against six other major currenciesrecovered from Tuesday's three-week low of 90.117 to last stand0.2% higher at 90.864.
Soaring U.S. bond yields boosted the dollar, with the10-year yield rising as high as 1.333% from around1.20% at the end of last week.
"The sell-off in U.S. Treasuries is the major driver of FXat the moment, with the dollar inevitably finding support, andnot only vs the usual victim JPY (USD/JPY has the highestcorrelation in FX with US 10Y yields), as commodity currenciesare actually being hit the hardest," said Francesco Pesole, G10FX strategist at ING.
"While the bond market is doubling down on reflationarybets, other assets are failing to show signs of upbeat risksentiment. The risk is that the rise in U.S. yields has gatheredsuch pace so as to start being self-defeating and cause acorrection in risk assets."
The yen, which is sensitive to U.S. yields, reacted the mostwith the dollar jumping to as high as 106.225 yen in Asiantrade, its highest since September, before retreating to 105.89yen.
"I think the dollar's downtrend is over. At the start of theyear, speculators were betting on a fall in the dollar below 100yen. They seem to have abandoned such a view now," said YukioIshizuki, senior strategist at Daiwa Securities.
A sign of dwindling bets on the dollar's fall against theyen is apparent in the options market. Short-term dollar calloptions, or bets on the dollar, have become more expensive thandollar puts, bets against the currency.
The one-week risk-reversal spread is now infavour of dollar calls for the first time in almost five years.
"If one thinks U.S. yields will rise further, we could seemore gains in the dollar," said Jun Arachi, senior currencystrategist at Rakuten Securities.
"I would say this trade could continue until Bidenadministration's stimulus package will come into effect,possibly in March, at which point people could start unwindingtheir bets to 'sell-on-fact'".
Biden tried to build public support for his $1.9 trillioncoronavirus relief plan in a town hall.
The New York Federal Reserve's Empire State manufacturingreport released on Tuesday offered an upbeat economic picture,with a rise in its "prices paid index" stoking concern overfaster inflation.
That optimism was echoed by St. Louis Fed President JamesBullard, who told CNBC that U.S. financial conditions were"generally good," and that inflation was likely to heat up thisyear.
San Francisco Fed President Mary Daly, however, saidpressures on inflation are still downward, pushing againstcritics warning low interest rates and government spending couldoverheat the U.S. economy and spark high inflation.
The euro slipped 0.4% to $1.2058, though its fall wasless pronounced after its gains earlier on Tuesday followingstrong German economic sentiment data.
"Although we continue to see short-term risks to EUR/USD asbalanced, it was worth yesterday to notice the USD reaction tostronger U.S. data," said Mikael Milhøj, senior analyst atDanske Bank.
"Unlike recently where we saw weakness in payrolls and CPIdata take USD weaker, we now saw some evidence that positivedata surprises (Empire manufacturing) are USD-positive too. Thisis different from last year, where positive US surprises wereUSD-negative by removing global deflation risks."
The positive mood on the economic outlook is underpinningrisk-sensitive currencies.
The British pound fell 0.3% to $1.3856, havingreached its highest level since April 2018 on Tuesday. Againstthe euro, the pound traded at its highest level since early Mayat 86.84 pence per euro.
The Australian dollar fell 0.2% to $0.7736, not farfrom Tuesday's one-month high of $0.7805.
The offshore Chinese yuan stepped back to 6.4576 per dollarafter hitting a two-and-a-half-year high of 6.4010earlier in the week.
(Reporting by Ritvik Carvalho; additional reporting by HideyukiSano in Tokyo; editing by Larry King)
https://finance.yahoo.com/news/forex-dollar-hits-five-month-122039306.html
2021-02-17 12:20:00Z
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