(Recasts, adds comment, updates price, changes byline,
dateline; previous LONDON)
* Attention back on monetary policy outlook for Europe, U.S.
* Yen, Swiss franc weaken
* U.S. yields rise on Fed rate hike expectations
By Gertrude Chavez-Dreyfuss
NEW YORK, May 9 The dollar surged to nearly
two-month highs against the yen on Tuesday as risk appetite
improved following the French election and investors focused on
monetary policy and potential upcoming Federal Reserve interest
U.S. benchmark 10-year Treasury yields hit
five-week highs, with rate futures pricing in close to a 90
percent chance of an interest rate increase next month. Yields
on U.S. two-year notes, the tenor most sensitive to rate hike
expectations, also advanced on Tuesday, climbing to eight-week
The dollar index, tracking the greenback's value against six
major currencies, rose to a three-week high, in line with the
gains in yields.
"While the U.S. economy saw a marked deceleration in the
first quarter, the overall outlook remains solid and the Fed is
still widely expected to raise U.S. lending rates in June and
likely again in September," said Omer Esiner, chief market
analyst, at Commonwealth Foreign Exchange in Washington.
The interest rate premium investors receive for holding
dollar 10-year government bonds instead of their yen equivalents
rose to its highest since the end of March overnight.
In late morning trading, the dollar was up 0.7 percent
against the yen at 114.08 yen , after earlier hitting its
highest level since mid-March. The euro also rose against the
yen, up 0.5 percent at 124.27 yen.
The Swiss franc, another currency with firmly negative
interest rates as well as a central bank actively seeking to
weaken it with market intervention, fell to its lowest against
the euro since mid-October. It was down just over 2 percent
against the euro over the last two weeks, compared to an almost
3 percent fall in the dollar.
The euro was last up 0.4 percent at 1.0949 francs,
while the dollar rose 0.6 percent to 1.0051 francs.
Market measures of volatility for euro-dollar rates have hit
their lowest in three years in the past week and
Deutsche Bank strategist Oliver Harvey warned in a note on
Tuesday of the risks of a turn in that trend.
"One of the main themes this year has been the fall in vol
... but there are increasing signs a turning point is close," he
said, pointing to the risks of downbeat signals on global growth
and the chances of the Fed outpacing expectations on future
The euro dipped back below $1.09, down 0.3 percent,
falling from six-month highs hit after Emmanuel Macron's victory
in the French presidential election on Sunday.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Patrick Graham in London; Editing by Meredith Mazzilli)