April 19, 2018 / 7:01 PM / a year ago

FOREX-Dollar rises with higher U.S. yields, sterling slumps

    * Pound falls to near two-week low after BOE Carney's remarks  
    * U.S. 2-year yield climbs to highest level since Sept 2008
    * Euro stalls as traders worry about euro zone growth 

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, April 19 (Reuters) - The dollar gained against a basket of currencies on Thursday
on higher U.S. bond yields and expectations of more rate increases from the Federal Reserve,
while sterling fell to a near two-week low on perceived dovish remarks from the head of the Bank
of England. 
    Recent economic data suggested business activities overseas may have peaked. This has
reduced the appeal of the euro, yen, pound and other currencies which have strengthened against
the dollar since 2017 based on the view economies outside the United States had been faring
better until recent weeks.
    The relatively optimistic backdrop in the United States should support the Fed to raise
short-term rates at least twice more in 2018, traders and analysts said.
    "People are looking at the next potential rate hike whether we get two or three more this
year," said Minh Trang, senior foreign exchange trader at Silicon Valley Bank in Santa Clara,
    An index that tracks the greenback versus the euro, yen, sterling and three other currencies
 rose 0.28 percent, to 89.877 after touching a one-week peak.
    The euro was last down 0.21 percent, at $1.2346, while the dollar was 0.10
percent higher at 107.34 yen.
    The U.S. economy, while not firing on all cylinders, has remained on a steady growth path
which has assured the Fed to stick with its current pace of rate increases.
    This has propelled the two-year Treasury yield to 2.436 percent, its highest
level since September 2008. Its yield gap over two-year German Bunds has reached
its widest level in over three decades. The hefty 3 percentage point yield premium has supported
some overseas demand for the dollar, analysts said.
    On the other hand, the dollar faces headwinds from the uncertainty stemming from U.S.
President Donald Trump's trade and economic policies, as well as political events in the Middle
East and elsewhere.
    "There is a little bit of fatigue with the trade war issue and the global economic cycle is
losing momentum, especially in the euro zone whereas the U.S. is holding up," said Christin
Tuxen, an FX strategist at Danske Bank in Copenhagen.
    Investors are growing nervous that the euro zone economy's rebound is nearing the top and
the European Central Bank may move more slowly to tighten monetary policy. 
    Bank of England Governor Mark Carney on Thursday acknowledged the recent mixed domestic
economic readings, which reinforced the view the BOE would raise rates gradual over next few
years. His comments knocked the pound to near two-week low against the dollar. 
    Sterling was last down 0.85 percent at $1.4085. 
    Currency bid prices at 1443 EDT (1843 GMT):
 Description      RIC         Last       U.S. Close  Pct      YTD Pct   High Bid   Low Bid
                                         Previous    Change   Change               
 Euro/Dollar                  $1.2344    $1.2372     -0.23    +2.90     +1.2400    +1.2330
 Dollar/Yen                   107.3800   107.2300    +0.14    -4.70     +107.5100  +107.1900
 Euro/Yen                     132.55     132.68      -0.10    -1.95     +133.0700  +132.3600
 Dollar/Swiss                 0.9716     0.9685      +0.32    -0.28     +0.9724    +0.9668
 Sterling/Dollar              1.4082     1.4201      -0.84    +4.22     +1.4245    +1.4079
 Dollar/Canadian              1.2671     1.2626      +0.36    +0.75     +1.2675    +1.2585
 Australian/Doll              0.7719     0.7782      -0.81    -1.05     +0.7812    +0.7720
 Euro/Swiss                   1.1993     1.1985      +0.07    +2.60     +1.2001    +1.1963
 Euro/Sterling                0.8763     0.8712      +0.59    -1.35     +0.8770    +0.8689
 NZ Dollar/Dolar              0.7262     0.7317      -0.75    +2.48     +0.7342    +0.7262
 Dollar/Norway                7.7970     7.7601      +0.48    -5.00     +7.8039    +7.7340
 Euro/Norway                  9.6281     9.6008      +0.28    -2.24     +9.6385    +9.5718
 Dollar/Sweden                8.4093     8.4027      -0.17    +2.53     +8.4181    +8.3712
 Euro/Sweden                  10.3810    10.3989     -0.17    +5.51     +10.4051   +10.3593

 (Additional reporting by Tommy Wilkes in LONDON, Shinichi Saoshiro in TOKYO; 
Editing by Susan Thomas and Tom Brown)
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