* U.S. CPI core inflation slightly below expectations
* Benchmark 10-year Treasury note auction sees tepid demand
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
(Adds details of U.S. 10-year Treasury auction, analyst
comments; updates prices)
By John McCrank
NEW YORK, March 10 (Reuters) - The dollar edged lower on
Wednesday following a tame U.S. inflation report and a tepid
auction of benchmark 10-year Treasury notes US10YT=RR , while
riskier currencies like the Australian and New Zealand dollars
rose on improving global growth prospects.
U.S. consumer prices posted their biggest annual gain in a
year, though underlying inflation remained tepid amid sluggish
demand for services like airline travel, the data showed.
The move was largely in line with economists' expectations,
though core inflation rose 0.1% versus market forecasts for a
0.2% rise.
U.S. Treasury yields slid following the data, as market
participants had hoped for a more upbeat outlook on consumer
prices. The dollar index has closely tracked a surge in Treasury
yields this year, both because higher yields increase the
currency's appeal and as the bond rout shook investor
confidence, spurring demand for safe-haven assets.
"The drive of the dollar's movement since the beginning of
the year has been U.S. interest rates, and I just don't see that
scenario changing," said Joseph Trevisani, senior analyst at
FXSTREET.COM.
Bond yields fell and prices rose after an auction of 10-year
Treasury notes showed tepid demand with lower than average
bid-to-cover ratio. Treasury auctions have been closely watched after poor
demand for an auction of 7-year notes US7YT=RR two weeks ago
sparked a sell-off in government bonds. An auction of 30-year Treasuries is scheduled for Thursday.
The dollar index =USD was down 0.17% at 91.845.
"Bonds are getting stronger, which means the dollar
relatively speaking, may be less attractive," said Axel Merk,
president and portfolio manager at Merk Hard Currency Fund in
Palo Alto California.
"Bonds had quite a sell-off and many would have argued that
it may have been overdone," he said.
Riskier currencies including the Australian AUD= and New
Zealand dollars NZD= were higher on rising prospects for the
global economic recovery. The Aussie and Kiwi dollars were both
up 0.27% at $0.7732 and $0.7186 respectively.
U.S. President Joe Biden's sweeping $1.9 trillion COVID-19
relief bill won final approval in the House of Representatives
on Wednesday. The White House said Biden plans to sign the bill
into law on Friday. The euro EUR=EBS was up 0.16% at $1.19195 ahead of a
meeting of the European Central Bank on Thursday.
One topic is expected to dominate the ECB meeting: what to
do about rising sovereign bond yields, which, if left unchecked,
could derail efforts to get the coronavirus-hit economy back on
track. The Bank of Canada on Wednesday left its key overnight
interest rate unchanged at 0.25%, as expected, and said the
Canadian economy was proving to be more resilient than
anticipated to the second COVID wave and containment measures.
The Canadian dollar CAD=D3 , which has been one of the
best-performing currencies versus the greenback, was 0.06% lower
at $1.2629.
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