* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Saikat Chatterjee
LONDON, April 14 (Reuters) - The dollar nursed losses near a
one-month low on Wednesday as strong demand at a U.S. bond
auction fuelled a widespread drop in Treasury yields, reducing
the interest rate advantage the greenback held over other major
currencies.
While rate differentials between U.S. and German benchmark
10-year yields DE10US10=RR have narrowed slightly to 193 bps
from more than 200 bps at the start of the month, they remain
considerably higher than 150 bps seen at the start of the year.
April has been a month of "mean reversion" trades among
major currencies with the yen and the euro recovering most of
their sharp losses sustained in March. Even commodity currencies
including the Aussie and the kiwi dollar have bounced strongly.
Compounding the dollar's losses has been a broad pick-up in
inflationary pressures that showed U.S. consumer prices rising
by the most in more than 8-1/2 years in March at 2.6%.
But that pick-up has failed to translate into expectations
of an acceleration in policy tightening and on the contrary has
boosted demand for U.S. debt as investors bet inflation
pressures are transitory.
December 2022 futures contracts are signalling a slower rise
in implied interest rates, reflecting the Fed's resolve to keep
policy on hold.
"The Fed's continued commitment to loose monetary policy
remains a key assumption behind our view that it is still too
premature to expect a sustained U.S. dollar rally at the current
juncture," MUFG strategists said.
Federal Reserve Chair Jerome Powell was scheduled to speak
later on Wednesday at the Economic Club of Washington; his
comments on inflation will be keenly watched as he had
previously said higher pressures in the coming months would be
transitory. In London trading, the dollar edged 0.1% lower versus a
basket of its rivals =USD to 91.75, its lowest level since
March. 19. After peaking at a 4-1/2 month high of 93.43 at
end-March, the greenback has declined 2% as Treasury yields
eased.
The dollar was particularly vulnerable against the yen
JPY=EBS and the euro, with the single currency EUR=EBS
threatening to rise above the psychologically important level of
$1.20 for the first time since early March.
"Increasing vaccination trends in April and May will likely
give a further boost to the euro/dollar exchange rate," said
Vasileios Gkionakis, head of FX strategy at Banque Lombard
Odier.
Elsewhere, the New Zealand dollar rose 0.8% to a three-week
high at $0.7110 NZD=D4 after the country's central bank held
its official interest rate and asset purchase programme steady,
as expected. The Singapore dollar rose 0.25% to S$1.3376 SGD=D3 after
the Monetary Authority of Singapore (MAS) left its exchange-rate
policy settings unchanged. In cryptocurrencies, bitcoin touched a record high of
$64,895 BTC=BTSP ahead of the listing of cryptocurrency
platform Coinbase on Nasdaq later on Wednesday.
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World FX rates https://tmsnrt.rs/2RBWI5E
dollar positions https://tmsnrt.rs/3siohSW
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