* Dollar propped up by rise in Treasury yields
* Euro holds onto to most of gains since French vote
* Sterling wobbles slightly on reports from EU meeting
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, May 2 The dollar hit a one-month high
against the yen on Tuesday, lifted by a surge in U.S. government
bond yields after U.S. Treasury Secretary Steven Mnuchin
commented on the possibility of ultra long-term bond issuance.
With European markets returning after Monday's May Day
holidays, the greenback gained around a quarter of a percent to
trade as high as 112.18 yen, its strongest since March 31
and close to a six-week high of 112.21 yen.
Mnuchin told Bloomberg in an interview on Monday that
issuing debt exceeding 30-years in maturity "can absolutely make
sense", driving 30-year yields to a three-week high and returns
on 10-year bonds to a session peak.
The euro, however, held strong against the greenback, some
measure of market doubts over whether the Trump administration
is capable of delivering a promised boost to growth, chiefly now
envisaged to come through tax cuts.
"Mnuchin's comments have at least stabilised the long end of
the curve," said Lee Hardman, a currency economist with Japan's
"But the dollar is still on the defensive in the near term.
The data from the U.S. has been coming in on the disappointing
side and the Fed is likely to acknowledge that at this week's
The "Trumpflation" trades that dominated the end of last
year, driving Treasury yields and the dollar higher on
expectations of higher inflation, growth and official interest
rates have faded this year.
The dollar has fallen almost 4 percent against the euro in
the first four months of 2017. It traded less than half a cent
off last week's 5-1/2 month high of $1.0951.
The latest U.S. economic indicators have been underwhelming.
A survey out on Monday showed factory activity slowed in April,
while data showed consumer spending was unchanged in March, and
an important inflation measure fell on a monthly basis for the
first time since 2001.
Other U.S. data out later this week include an ADP
employment report on Wednesday, durable goods orders on Thursday
and a non-farm jobs report on Friday.
The Fed is widely expected to keep interest rates unchanged
at a two-day policy meeting that begins on Tuesday, but its
attitude to the recent data will be crucial for market
expectations of another rise in interest rates in June.
Sterling, one of the past month's strongest performers in
currency markets globally, dipped 0.1 percent to $1.2871 and 0.2
percent to 84.75 pence per euro, with eyes moving to a PMI
survey of manufacturing sector purchasing managers.
Some analysts were surprised there was not a bigger impact
from readouts of a fractious meeting between Prime Minister
Theresa May and a European Union delegation last week that bodes
ill for the first stages of Brexit talks this year.
"While political clarity has been applauded by investors so
far this year, it is clear from the past 36 hours of trading
that the focus is now moving on to the negotiations over the
UK's exit," said Simon Derrick, chief market strategist with
Bank of New York Mellon in London.
"Given the likely challenges ahead, this suggests that the
pound may now find upward progress rather harder than it has so
far this year."
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by