FOREX-Dollar edges lower as recent rally runs out of steam

* Euro/dollar hovers around $1.216
* Aussie, Kiwi gain as sentiment improves

(New throughout, updates prices, market activity, comments to
U.S. market open; previous LONDON)
By Saqib Iqbal Ahmed
NEW YORK, Jan 12 (Reuters) - The U.S. dollar edged lower
against a basket of currencies on Tuesday, as its recent rally,
driven by a spike in U.S. Treasury yields, appeared to run out
of steam.
The dollar had hit a more than 2-1/2-year low in January
after sliding for months as the U.S. Federal Reserves' interest
rate cuts and strong investor demand for riskier assets has
sapped demand for the safe-haven U.S. currency.
Expectations for a wave of spending under an incoming Joe
Biden administration have pushed Treasury yields higher, with
the 10-year yield reaching a 10-month high on Tuesday.
The dollar index =USD , which measures the greenback
against a basket of currencies, was 0.11% lower at 90.38. The
index, which fell as low as 89.206 last week, has climbed 1.5%
since then.
New lockdown measures across Europe to fight a second
COVID-19 wave are feeding worries of a "double-dip recession,"
in the region, said Minh Trang, senior FX trader at Silicon
Valley Bank.
That, combined with the rise in U.S. yields, has helped
boost the dollar in recent days, Trang said.
The support from rising yields has so far trumped worries
that the extra spending in the United States could trigger a
faster rise in inflation. But many analysts expect the dollar to
resume its decline as stimulus spending and vaccine rollouts
brighten the global economic outlook.
Most emerging market currencies rose on Tuesday, including
the offshore yuan CNH=EBS , Mexican peso MXN=D3 and South
African rand ZAR=D3 .
With risk sentiment improving, riskier developed market
currencies such as the Australian and New Zealand dollars also
made modest gains against the dollar. AUD=D3 NZD=D3 .
Sterling rose against the euro GBPEUR= and the dollar
GBP= on Tuesday as comments from the Bank of England's
governor on the viability of negative interest rates dampened
some expectations for subzero rates in Britain. Bitcoin BTC=BTSP was down about 5% at $33,866, a day after
it fell 7% in a highly volatile session. The cryptocurrency's
rally has faltered since it soared to a record high of $42,000
on Jan. 8, and it was on pace for it fourth straight session of
losses.

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GRAPHIC: World FX rates in 2021 https://tmsnrt.rs/2RBWI5E
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