* Dollar digests profit taking, rise towards 14-year peak
* Greenback supported as Treasury yields resume climbing
* Safe-haven yen struggles for traction amid strong risk
(Updates prices, adds details and quotes)
By Shinichi Saoshiro
TOKYO, Jan 4 The dollar moved back towards a
14-year peak on Wednesday as U.S. debt yields resumed climbing,
giving a lift against the safe-haven yen amid strong investor
appetite for riskier assets.
The dollar index against a basket of major currencies
was up 0.1 percent at 103.30.
The index climbed to a 14-year high of 103.82 the previous
day in reaction to the Institute for Supply Management (ISM)
numbers, which showed U.S. factory activity accelerated to a
two-year high in December.
Late on Tuesday, profit-taking on the dollar in the wake of
a pullback in U.S. yields had taken the index towards 103.00.
The euro was down 0.1 percent at $1.0394 after
briefly recovering to $1.0423. It hit a 14-year trough of
Against the Japanese yen, the greenback was up 0.2 percent
at 111.970 after slipping to 117.540. The U.S. currency
surged overnight to a near three-week peak of 118.605 yen.
The yen, which usually benefits in times of risk aversion,
struggled for traction as the region's risk assets gained. The
Nikkei added more than 2 percent in the first trading
day of the year.
U.S. Treasury yields had tempered the dollar's overnight
rally by making an about-turn following their initial spike in
response to the upbeat ISM data. Then, amid the risk-on mood,
yields rose again, shoring up the dollar.
"The dollar's moves show just how much the currency depends
on Treasury yields for direction," said Masashi Murata, senior
currency strategist at Brown Brothers Harriman in Tokyo.
"While I expect the dollar to be volatile given its close
and sensitive link to Treasuries, from a longer-term perspective
I see it tracking yields higher this quarter."
The 10-year Treasury note yield surged to its
highest level since September 2014 in December on expectations
that U.S. President-elect Donald Trump would introduce
reflationary measures backed by large fiscal spending, prompting
the Federal Reserve to follow through with a series of interest
The growing consistency of strong U.S. economic reports has
also added to expectations of additional tightening by the Fed,
which had just hiked rates last month.
Still, the greenback was seen facing potential turbulence
ahead of Friday's highly anticipated U.S. non-farm payrolls
"The problem is that the run-up to the Fed's first rate hike
in a year is now over and while policymakers have signalled
plans to raise rates three more times this year, the dollar's
sharp rally last quarter invited profit-taking," wrote Kathy
Lien, managing director of FX Strategy for BK Asset Management.
"There are also concerns about how strong Friday's non-farm
payrolls report will be."
The Australian dollar was up 0.3 percent at $0.7238
. The Aussie was on a steady footing after being buoyed
the previous day by a survey showing China's December factory
activity picked up faster than expected.
The New Zealand dollar did not fare as well against the
broadly higher dollar, slipping 0.2 percent to $0.6903.
The pound was little changed at $1.2238 after
stooping overnight to a two-month low of $1.2200.
(Reporting by Shinichi Saoshiro; Editing by Eric Meijer and