U.S. BOND RALLY WEIGHS ON DOLLAR Analysts said the sharp drop in U.S. bond yields made the dollar less attractive and reduced its appeal as a safe-haven asset. The U.S. dollar index - which measures the currency against six major peers - was down 0.26% at 103.53, following last week's 0.73% fall. RBC's Tan said the yen is "the cleanest safe-haven in FX", given the fall in U.S. yields. Yields on 10-year U.S. Treasury notes were down 3 basis points to 3.365% on Monday as investors moved into government bonds, which are seen as safe assets, and bet the Federal Reserve would now struggle to raise interest rates much further.
U.S. 10-year yields, which move inversely to prices, stood at a 16-year high of 4.091% at the start of March. The Fed's latest rate decision is due on Wednesday and adds an additional layer of uncertainty.
Rates currently stand at 4.5% to 4.75%. Traders now think there's a 60% chance of no change and a 40% chance of a 25 basis point increase later this week, according to derivative market pricing . They are positioned for a peak in rates in May at around 4.8%, followed by a steady series of cuts into the end of the year. "We continue to recommend a short USD/JPY trade, which is benefitting from the pick-up in risk aversion and less favourable financial market conditions," said Lee Hardman, senior currency analyst at Japanese bank MUFG. To short means to bet on a fall in price. Australia's dollar was 0.13% lower at $0.669. The U.S. dollar slipped 0.17% against its Canadian counterpart to C$1.371. In cryptocurrencies, bitcoin rose to a nine-month high of $28,567, last trading 0.87% higher at $28,291. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Fed currency swaps have seen little recent use ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Harry Robertson and Kevin Buckland; Editing by Edwina Gibbs, Raju Gopalakrishnan, Ed Osmond and Christina Fincher)
Kevin.buckland@thomsonreuters.com))