FOREX-Dollar treads water near 3-1/2-week high, backed by higher U.S. yields

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Daniel Leussink
TOKYO, May 22 (Reuters) - The dollar largely kept to
familiar trading ranges on Wednesday, as it found support near a
3-1/2-week high on higher U.S. yields after the United States
eased trade restrictions on Chinese telecommunications equipment
maker Huawei Technologies.
The move came as a relief to markets hit by escalating trade
tensions between the United States and China, though analysts
said sentiment remained fragile with tariff negotiations between
the world's two largest economies yet to produce a durable
solution.
"The trade dispute won't be resolved easily, so the risk-off
mood won't come off all of a sudden, said Ayako Sera, market
strategist at Sumitomo Mitsui Trust Bank. "I think market
sentiment will rather improve one small step at a time."
Against a basket of key rival currencies, the dollar was
largely steady at 98.031 .DXY , having brushed a 3-1/2-week
high of 98.134 overnight. The index has risen 1.9% this year.
The U.S. Commerce Department blocked Huawei Technologies Co
Ltd HWT.UL from buying U.S. goods last week, leading several
companies to suspend business with the world's largest telecoms
equipment maker.
Chipmakers, many of which sell to Huawei, bore the brunt of
the sell-off. But late on Monday, the United States granted
Huawei a licence to buy U.S. goods until Aug. 19. Against the yen, the dollar was largely steady at 110.49 yen
JPY= , after hitting a two-week high of 110.675 during the
previous session. The greenback has recovered 1.4% from a
three-month trough of 109.02 yen touched on May 13.
Japan's exports fell 2.4% in April from a year earlier, down
for a fifth straight month, in a sign of weakness in external
demand, finance ministry data showed. That was more than the
1.8% decrease expected by economists in a Reuters
poll. Sumitomo Mitsui's Sera said the yen's weakness overnight was
thanks to higher U.S. Treasury yields, which ticked up in
response to the recovery in U.S. equities.
"When yields are rising, it's natural for the dollar to be
bought. I think moves in U.S. yields are really important," she
said.
The 10-year U.S. Treasury note yield US10YT=RR was up
slightly at 2.428%. It had moved further off a seven-week low of
2.354% brushed on Thursday during the previous session.
MUFG Bank's chief currency strategist Minori Uchida said he
expected demand for the U.S. currency to remain strong on a need
for dollar funding among emerging markets and on investor
cautiousness due to the Sino-U.S. trade dispute.
"Even if yields fall, that's not likely to put a big dent in
the dollar's rise," he said.
The Australian dollar edged down to $0.6881 AUD=D4 ,
drifting back toward its recent low of $0.6865 as investors
piled into wagers for two cuts in interest rates by the
country's central bank this year. Elsewhere in the foreign exchange market, the euro EUR=
was steady at $1.1162 EUR= .
The single currency, which has given up 0.9% from this
month's high touched on May 1, has been under pressure in recent
weeks on dollar strength and due to concerns the coming European
parliamentary elections may see euroskeptic parties faring well.
The pound was at $1.2715 GBP=D4 , hovering near a
four-month low of $1.2685 touched overnight.
Sterling briefly rose overnight after Prime Minister Theresa
May set out a "new deal" for Britain's departure from the EU,
offering sweeteners to Parliament including the chance to vote
on whether to hold a second referendum to try to break the
impasse over Brexit.
Yet traders doubted that a fractious parliament would back a
second referendum.

(Editing by Shri Navaratnam and Richard Borsuk)