FOREX-Euro, yen gain as dollar's rate advantage evaporates

* Euro, yen hit highs vs dollar overnight
* Tumbling Treasury yields blunt U.S. rate advantage
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, March 6 (Reuters) - The dollar fell further against
the euro and yen on Friday as sliding U.S. Treasury yields
eliminated more of its interest rate advantage over other
currencies.
Mounting fears over the effects of the coronavirus have
driven a drop in expectations for U.S. rates. Markets now bet
the Federal Reserve will have to cut rates by 50 basis points
for a second time this month. FEDWATCH
The resulting collapse in Treasury yields has ended one of
the most popular carry trades globally - borrowing at negative
rates in the euro and yen to buy U.S. assets.
The euro has now reversed all its earlier losses for the
year, rising from below $1.08 a few weeks ago to above $1.12.
ING analysts said they were targeting $1.15 in the coming
weeks as aggressive U.S. rate cuts contrasted with the limited
room for action at the European Central Bank. Fed fund futures
0#FF: were pricing in about 90 basis points of further easing
by the end of the year.
"For now, expect USD weakness vs G10 FX to continue, and the
G10 FX segment outperforming EM FX, with carry trades under
pressure," they said in a research note.
The euro last stood at $1.1234 EUR=EBS , after touching
$1.1249, its strongest since August.
The dollar index was down at 96.438 =USD , close to its
weakest this year.
Against the yen, the dollar dropped 0.3% to 105.82 yen
JPY=EBS . The yen is benefiting both from dollar weakness and
its reputation as a safe haven.
The dollar was not weaker across the board. It still holds
safe-haven status compared with emerging-market currencies and
those exposed to commodities.
That left it holding gains against the Canadian CAD= ,
Australian AUD= and New Zealand dollars NZD= , along with
currencies across Asia, where the coronavirus economic effect is
pronounced.
Sterling stabilised after Thursday's move higher. It was
last up 0.1% at $1.2971 GBP=D3 .

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