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* Dollar index nudged off 2-week highs
* Global bond yields fall on dovish cbanks, fading trade
optimism
* Swedish crown firms as Rijksbank holds policy tightening
line
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Updates throughout, changes byline, dateline)
By Sujata Rao
LONDON, July 3 (Reuters) - The dollar slipped to a one-week
low against the Japanese yen on Wednesday, undermined by the
steady fall in U.S. Treasury bond yields, fading optimism over
the Sino-U.S. trade deal and the possibility of fresh tariff
hostilities with Europe.
Meanwhile the Swedish crown briefly jumped to a 2-1/2 month
high versus the euro after the central bank said it was on track
to tighten policy by early 2020. Against a basket of six major currencies, the dollar pulled
back from two-week highs scaled on Tuesday .DXY as U.S. bond
yields extended the previous day's heavy fall, with 10-year
yields hitting 2-1/2-year lows below 1.94%.
"Traders don't want to take big bets before the U.S. jobs
data with the Swedish central bank providing the only surprise
for currency markets by signalling a confident economic
outlook," said Lauri Hallika, a fixed income and currency
strategist at SEB in Stockholm.
Sweden's central bank held its line on policy tightening by
year-end or early-2020, noting a "good" inflation and economic
outlook.
The comments prompted traders to unwind a five basis point
probability of a rate cut in the bond futures market, pushing
the currency higher.
The Swedish crown rallied to 10.4890 EURSEK=D3 against the
euro and into positive territory versus the dollar SEK=D3 .
WEAK DOLLAR
The yen firmed 0.23% to the dollar JPY=D3 at 107.6 yen as
investors grew more sceptical about the possibility of a speedy
resolution to the trade war, especially given U.S. President
Donald Trump's comments that any deal would have to be tilted in
favour of the United States. The global investor spotlight will move to U.S. non-farm
payrolls data due on Friday, which economists expect to have
risen by 160,000 in June, compared with a 75,000 May increase.
Expectations have grown that the Fed will embark on its
first rate cut in a decade at a policy review this month.
Markets are assigning a more than a 70% probability of a quarter
point rate cut at its next policy meeting in July.
"Two movers today are the yen, which is the risk-off safe
haven, and the pound which keeps heading lower," Colin Asher,
senior economist at Mizuho, said, adding that it had seemed
"like Carney is potentially teeing up a rate cut."
Sentiment was also dented by Washington's threat of tariffs
on $4 billion of additional European Union goods in a
long-running dispute over aircraft subsidies. Currencies are also under pressure from signs that more and
more central banks are set to ease monetary policy to combat
economic slowdown.
"The dovish stuff from central banks is pushing yields down
across the board. It's starting to look like the weakness in
manufacturing is starting to spread to the services sector and
that's an alarm bell, a sort of green light to central banks to
ease policy," Asher said.
The euro was little changed at $1.128 EUR= following a
volatile session on Tuesday, when it swung between a low of
$1.1275 and a high of $1.1322.
The common currency briefly received a lift on Tuesday after
a media report that European Central Bank policymakers would not
rush to cut rates at their July meeting. But it later slipped
after IMF Managing Director Christine Lagarde, perceived as a
policy dove, was nominated as the next ECB president.
"The Lagarde news is not expected to be a factor for the
euro," said SEB's Hallika.
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FX market positions https://tmsnrt.rs/2FPLRRN
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