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Dollar slips to three-week low as inflation fears seen baked in for now

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TOKYO — The dollar fell to multi-week

lows against the euro and the yen on Wednesday, after an uptick

in a U.S. consumer price gauge did not spark wider fears about

accelerating inflation and the Federal Reserve’s tapering,

pushing down U.S. bond yields.

The dollar ticked down 0.2% to 108.80 yen, touching

its lowest level in three weeks, down about 2 percent from a

one-year peak hit at the end of last month.

The euro popped up 0.1% to $1.1960, hitting its

highest level since mid-March, as it extended a rally from a

five-month low of $1.1704 set on March 31.

Against the Swiss franc, the U.S. currency slipped to 0.9201

franc, near its lowest levels in six weeks.

While the dollar was stuck near its familiar ranges against

most other currencies, the dollar’s index against a basket of

six major units fell to as low as 91.724, its lowest

since March 22.

The greenback’s fall came as U.S. bond yields dipped, thus

reducing the currency’s yield attraction, as solid demand for a

30-year bond auction trumped rises in consumer inflation.

The 10-year U.S. Treasuries yield dipped to 1.620%

, also its lowest levels since late March.

The U.S. consumer price index jumped 0.6% in March versus

the previous month, the largest gain since August 2012, and rose

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2.6% from a year earlier, both 0.1 percentage point above market

expectations.

The core CPI, which excludes volatile foods and energy, was

also a tad stronger than expected, with a year-on-year increase

of 1.6%.

“Inflation has been expected to accelerate in the April-June

quarter. Although the latest reading was a bit stronger than

expected, it wasn’t out of the blue,” said Masafumi Yamamoto,

chief currency strategist at Mizuho Securities.

Speculation that firmer inflation could propel the Federal

Reserve to reduce its quantitative easing and low interest rates

earlier than it has pledged has been a major driver of the

dollar’s rally in the first quarter.

“It seems like the markets have already priced in economic

normalization as U.S. bond yields have risen considerably, with

the five-year yield almost reaching 1% at one point,” said

Minori Uchida, chief currency strategist at MUFG Bank.

The U.S. central bank has said it will look through

temporary increases in inflation, and analysts expect it will

allow inflation to run hotter than previously expected before

raising rates.

Philadelphia Fed Bank President Patrick Harker said on

Tuesday it is unlikely that inflation will run out of control

this year.

Elsewhere, the New Zealand dollar rose 0.4% to $0.7086

after the country’s central bank held its official

interest rate and asset purchase program steady, widely as

expected.

The Singapore dollar rose 0.25% to S$1.3376 per U.S. dollar

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after the Monetary Authority of Singapore (MAS) left its

exchange-rate policy settings unchanged.

The Russian rouble gained about 2% overnight

after U.S. President Joe Biden called on Russian President

Vladimir Putin to reduce tensions between Russia and Ukraine.

Biden phoned Putin to propose they meet in a third country,

in a sign of concern about tensions spinning out of control in

the Ukraine crisis.

In cryptocurrencies, bitcoin hit a record high of $63,860.71

ahead of the listing of cryptocurrency platform

Coinbase on Nasdaq later in the day.

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

Currency bid prices at 322 GMT

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

Previous Change

Session

Euro/Dollar $1.1963 $1.1949 +0.12% -2.09% +1.1963 +1.1940

Dollar/Yen 108.8400 109.1000 -0.22% +5.40% +109.0500 +108.8100

Euro/Yen 130.19 130.30 -0.08% +2.58% +130.3500 +130.0500

Dollar/Swiss 0.9196 0.9206 -0.08% +3.97% +0.9207 +0.9198

Sterling/Dollar 1.3768 1.3753 +0.14% +0.81% +1.3772 +1.3752

Dollar/Canadian 1.2541 1.2534 +0.06% -1.51% +1.2547 +1.2530

Aussie/Dollar 0.7661 0.7644 +0.21% -0.42% +0.7664 +0.7635

NZDollar/Dollar 0.7087 0.7057 +0.45% -1.30% +0.7089 +0.7048

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Editing by Jacqueline Wong and Kim Coghill)

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In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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