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FOREX-Dollar falls to early January lows; yuan rally gets noticed

 (Revises throughout, adds new comment, updates prices, new
byline, changes dateline, previous LONDON)
    * Dollar index back below 90; euro above $1.22
    * Chinese yuan gains to 6.40 to dollar, state banks
intervene
    * Interest rate trajectories drawing attention
    * Graphic: World FX rates tmsnrt.rs/2RBWI5E

    By David Henry and Ritvik Carvalho
    NEW YORK/LONDON, May 25 (Reuters) - The dollar hit 4-1/2
month lows against major peers on Tuesday, as markets seemed to
accept U.S. Federal Reserve arguments that monetary policy
should stay easy because inflationary forces are broadly weak,
while China state-owned banks were seen trying to curb a yuan
rally.
    The onshore yuan appreciated to 6.4016 per
dollar, the strongest since 2018, after opening at 6.4110. 
China's major state-owned banks, four sources said, were seen
buying U.S. dollars at around 6.4 yuan in the Asian afternoon in
a move viewed as an effort to cool a yuan rally led by its
offshore counterpart.
    The weakness of the dollar came as U.S. market interest
rates slipped again and yield on benchmark 10-year Treasuries
 hit fresh two-week lows and was at 1.579% in
mid-morning in New York.
    Interest rates in many other developed countries have
climbed in the past month and made their currencies more
competitive against the dollar, said Marc Chandler, chief market
strategist at Bannockburn Global Forex in New York.
    The outlook at the moment is for that difference to
continue, he added. "The Federal Reserve seems to be behind
several other central banks in adjusting and recalibrating
monetary policy," Chandler said.
    Since the end of March the dollar has been losing value on
the belief that low U.S. rates will drive cash abroad as
investors move to capture gains from elsewhere around the world
as economies recover from the pandemic. 
    The dollar index against major currencies was off
0.2% in the morning in New York after having fallen as much as
0.3% to 89.533, its lowest since Jan. 7. 
    The euro climbed to early January levels and was
last up 0.3% on the day to $1.2249.
    Strategists have said the dollar is likely be weak until
markets see stronger U.S. economic data and interest rates.
Stronger data could come on Friday with new readings on U.S.
core consumer prices in April and a survey of purchasing
managers.
    Comments from Federal Reserve officials are keeping down
U.S. yields, said Jeremy Stretch, head of G10 FX strategy at
CIBC. "That's maintaining the weaker dollar narrative," he said.
    Dovish comments from Fed speakers have provided backing for
the view that any policy tightening is not happening soon.
    Sterling, which had run up about 1.2% over the past
three weeks while other majors have steadied or even slipped,
was stalled at $1.4136 as though it could not break above $1.42.

    Cryptocurrencies Bitcoin and Ether was
off about 3% for the day in the morning in New York.
    ========================================================
    Currency bid prices at 10:23AM (1423 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change                   
                                              Session                                             
 Dollar index                 89.6820        89.8550     -0.18%         -0.332%       +89.8670    +89.5330
 Euro/Dollar                  $1.2249        $1.2217     +0.27%         +0.26%        +$1.2266    +$1.2213
 Dollar/Yen                   108.8800       108.7650    +0.11%         +5.39%        +109.0600   +108.5650
 Euro/Yen                     133.36         132.85      +0.38%         +5.07%        +133.6000   +132.8400
 Dollar/Swiss                 0.8961         0.8967      -0.06%         +1.29%        +0.8971     +0.8931
 Sterling/Dollar              $1.4136        $1.4155     -0.11%         +3.49%        +$1.4211    +$1.4123
 Dollar/Canadian              1.2059         1.2047      +0.08%         -5.32%        +1.2066     +1.2030
 Aussie/Dollar                $0.7762        $0.7754     +0.14%         +0.93%        +$0.7776    +$0.7747
 Euro/Swiss                   1.0975         1.0956      +0.17%         +1.55%        +1.0984     +1.0949
 Euro/Sterling                0.8663         0.8626      +0.43%         -3.07%        +0.8671     +0.8620
 NZ                           $0.7239        $0.7216     +0.33%         +0.82%        +$0.7250    +$0.7209
 Dollar/Dollar                                                                                    
 Dollar/Norway                8.2935         8.3290      -0.34%         -3.33%        +8.3490     +8.2910
 Euro/Norway                  10.1594        10.1790     -0.19%         -2.94%        +10.2285    +10.1555
 Dollar/Sweden                8.2539         8.3119      -0.45%         +0.70%        +8.3197     +8.2503
 Euro/Sweden                  10.1108        10.1564     -0.45%         +0.34%        +10.1647    +10.1124
        

    
 (Reporting by David Henry in New York and Ritvik Carvalho in
London
Editing by Alistair Bell)
  
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