Dollar gains on trade optimism, yen slips

By Karen Brettell

NEW YORK (Reuters) -The U.S. dollar was boosted for a second day on Wednesday on optimism that trade deals will brighten the U.S. economic outlook, while the Japanese yen was weaker after the government saw soft demand for 40-year bonds.

Pessimism over the U.S. economy has declined after Trump delayed on the weekend a plan to impose 50% tariffs on European Union imports and following a deal with China earlier this month to reduce tariffs imposed on each other.

“The weekend's quick reversal of tariff threats against Europe has bolstered risk appetite and reduced negative perceptions of the U.S. growth trajectory, and so that's boosting the dollar,” said Karl Schamotta, chief market strategist at Corpay.

Investors are also focused on Nvidia’s earnings due after Wednesday’s stock market close, which are likely to influence risk sentiment. A strong result would likely boost the U.S. currency, said Schamotta.

The Federal Reserve is due to release minutes from its May 6-7 meeting on Wednesday, though they are unlikely to offer any major surprises.

The Fed kept rates unchanged at this month’s meeting and said the risks of higher inflation and unemployment had risen.

Much stronger consumer confidence data on Tuesday bolstered the view that the U.S. economy remains solid, and until there are clear signs of weakening, the U.S. central bank is expected to prioritize inflation concerns in its monetary policy decision-making.

SUPER-LONG SELLOFF

The euro was last down 0.14% against the greenback at $1.1312. Against the Japanese yen, the dollar strengthened 0.33% to 144.8.

The dollar index rose 0.23% to 99.75.

Demand at an auction of 40-year Japanese government bonds on Wednesday fell to the lowest since July, amid a selloff in super-long debt this month.

The yen fell around 1% against the greenback on Tuesday on reports that Japan will consider trimming issuance of super-long bonds in the wake of recent sharp yield increases.

Soft demand for longer-dated debt globally has drawn attention to worsening government deficits. Traders are also watching progress of a budget and spending bill in U.S. Congress that is expected to add trillions of dollars of debt.

The Australian dollar weakened 0.42% versus the greenback to $0.6416.

Data earlier showed that Australian consumer inflation held steady in April, leaving hopes for more interest rate cuts mostly intact.

The New Zealand dollar was last up 0.07% at $0.595.

The country's central bank signalled it might be nearer to an end to easing than some in the market had hoped for, as it cut rates by 25 bps as expected.

(Reporting by Karen Brettell; Additional reporting by Ankur Banerjee, Johann M Cherian in Singapore and Linda Pasquini in Gdansk; Editing by Helen Popper, Kirsten Donovan and David Holmes)