* Dollar index inches away from 7-month highs
* Sterling jumps back to $1.23 on Brexit case headlines
* Kiwi over 1 pct after better-than-expected inflation data
* Aussie firms as RBA chief expresses comfort with FX levels
By Jemima Kelly
LONDON, Oct 18 The dollar slipped from a
seven-month high against a basket of currencies on Tuesday,
following U.S. Treasury yields lower as a sell-off in global
bond markets took a pause for breath.
Sterling jumped 1 percent in volatile trade after a
British government lawyer said parliament would "very likely"
have to ratify any deal to take Britain out of the European
Union, and following stronger-than-expected inflation
The greenback had rallied around 3 percent since the end of
September, mirroring a climb in benchmark U.S. Treasury yields
to a four-month high above 1.8 percent on
expectations that the U.S. Federal Reserve will raise interest
rates by the end of the year.
But after hitting its highest since March 10, the dollar
index, which tracks the greenback against six major rivals,
started to slip on Monday and continued that move on Tuesday by
falling a quarter of a percent, following a drop in
Fed Chair Janet Yellen said on Friday that the central bank
may allow inflation to exceed its 2 percent target.
"Perhaps we're just getting some follow-through from what
was essentially a dovish speech from Yellen," said Bank of
Tokyo-Mitsubishi UFJ strategist Derek Halpenny, in London.
"(But) it was just Yellen acknowledging what the market is
already priced for anyway," he addded. "So in essence the market
already believes that's the strategy in play, so there won't be
any major fall-out in the dollar from that."
A December rate hike is still the consensus view of markets,
with around a 70 percent chance priced in, according to CME
FedWatch. But it is far from a done deal.
Fed Vice Chairman Stanley Fischer said on Monday that
economic stability could be threatened by low interest rates,
but it was "not that simple" for the Fed to hike.
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Having hit a 2-1/2-month low of $1.0964 on Monday,
the euro climbed back above $1.10.
"You've had a pretty good run in the dollar in the last few
weeks so I think this is more profit-taking than a real economic
story," said London-based HSBC currency strategist Dominic
Bunning. "But generally speaking it's very hard for the dollar
to maintain a bull run at the moment, because a stronger dollar
acts as a tightening force on the U.S. economy."
The biggest gainer against the dollar was the New Zealand
dollar. It jumped more than 1 percent to a two-week high of
$0.7214 after better-than-expected inflation data,
though at an annual rate of 0.2 percent it was still well below
the Reserve Bank of New Zealand's target of 1 to 3 percent.
(Editing by Andrew Heavens)