Dollar pauses for breath as fragile pound edges up

By Alun John and Tom Westbrook

LONDON/SYDNEY (Reuters) – The dollar took a pause on Tuesday in what has been a relentless climb higher as under-fire sterling as well as the euro and Japanese yen recovered some ground from multi-year lows, but medium-term fundamentals were still in the greenback’s favour.

Sterling climbed over 1% to $1.0810, on track for its biggest daily percentage gain in nearly seven weeks, the euro rose 0.2% to $0.9629, and the dollar slid 0.3% against the yen to 144.28.

The decline in the dollar was broadly in line with a recovery in markets’ sentiment towards riskier assets, which also boosted European stocks and U.S. share futures, and was helped by U.S. treasury yields steadying after their recent gains.

“We’ve seen some people trimming their long dollar positions a bit, but we’re looking to the New York open to see how those treasury yields are going to play throughout the day,” said Simon Harvey, head of FX analysis at Monex Europe.

“All it needs is them to pick up a bit and the risk environment becomes less supportive and then you start wondering what happens to UK investor sentiment. This brief flurry of strength in the pound feels like it’s on shaky ground.”

Tuesday’s moves were minor compared to the dollar’s significant recent gains. The euro was still near its 20-year trough hit a day earlier, and the yen was just off its 24-year nadir hit last week before Japanese authorities intervened to strengthen the currency.

Sterling was not too far from its record low of $1.0327 hit Monday, the end of a plunge that began Friday when markets were spooked by Britain’s gambit of relying on unfunded tax cuts to spur growth, which also sent short-term gilt yields up 100 basis points in two days.

Investors will watch an appearance by the Bank of England’s chief economist, Huw Pill, at a panel event beginning at 1100 GMT.

The central bank on Monday said it would not hesitate to change interest rates and was monitoring markets “very closely”, though did not take any immediate action.

Broad fundamentals are still pointing to a stronger dollar in the medium term.

“Everyone’s got this hope that the dollar is peaking and peaking and peaking, but it’s just been far too premature,” said Paul Mackel, global head of FX research at HSBC.

“The Fed is firmly hawkish and global growth is weakening, and you put those forces together alongside higher elements of risk aversion – it’s all pointing to a strong dollar if not a strengthening dollar.”

The dollar index was at 113.6, down 0.5% on the day, but still near its 20 year top of 114.58 hit the day before.

The Aussie and kiwi, which hit 2-1/2 year lows on Monday, were also on the rebound, with the Aussie up 0.57% to $0.6490 and the kiwi up 1.2% to $0.5702. [AUD/]

Bitcoin, which also often moves in line with risk sentiment, hit a 10-day top and was last up over 5% at around $20,200

========================================================

Currency bid prices at 1055 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$0.9629 $0.9609 +0.22% -15.29% +0.9670 +0.9584

Dollar/Yen

144.2800 144.7000 -0.28% +25.46% +144.7050 +144.0800

Euro/Yen

138.93 139.07 -0.10% +6.61% +139.5400 +138.7100

Dollar/Swiss

0.9869 0.9926 -0.56% +8.21% +0.9941 +0.9859

Sterling/Dollar

1.0805 1.0690 +1.09% -20.09% +1.0837 +1.0651

Dollar/Canadian

1.3677 1.3728 -0.37% +8.17% +1.3741 +1.3641

Aussie/Dollar

0.6492 0.6459 +0.51% -10.69% +0.6513 +0.6452

NZ

Dollar/Dollar 0.5706 0.5635 +1.27% -16.63% +0.5722 +0.5635

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; Editing by Sam Holmes and Mark Potter)