* Yen rises nearly 1 percent on lower U.S. bond yields
* Lead of UK PM May's Conservatives drops in YouGov poll
* Sterling falters, down 0.6 pct on the day
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, May 26 The yen rose nearly 1 percent on
Friday against the dollar after a dip in Treasury yields hit the
U.S. currency, while Britain's pound hit a three-week low after
a poll showed a narrowing lead for the ruling Conservatives
before elections next month.
The dollar was slightly higher against a basket of peers,
while the euro reversed modest gains earlier in the day.
The Japanese yen hit a three-day high, up 0.8 percent to
110.88 per dollar. Analysts cited a fall in U.S.
Treasury yields since Federal Reserve minutes on Wednesday
prompted questions over the pace and extent of interest rate
"The yen appreciated and continues to correlate more closely
with U.S. bond yields. I don't believe they'll fall very far but
the move could be exacerbated by a number of places having a
holiday on Monday," said Kit Juckes, currency strategist with
Societe Generale in London.
"You can get outsized moves (owing to the holiday), and I
suspect that yen shorts were a consensus trade last week."
Investors tend to "square" or offset their long (buy) or
sell (short) positions on currencies before major holidays.
Against a basket of six major currencies, the dollar
was up less than 0.1 percent to 97.281.
The euro pared gains made earlier in the day and was down
0.2 percent at $1.1192, having touched a 6-1/2 month
high of $1.1268 earlier this week.
The common currency has enjoyed a near 3 percent gain this
month on factors including an ebb in French political concerns
and upbeat euro zone data.
STERLING HIT BY POLLS
In a sign that Britain's June 8 election could be far more
closely contested than previously thought, a YouGov poll
published on Thursday showed the opposition Labour Party had cut
the lead of May's Conservatives to five points.
That pulled the pound over half a percent lower to $1.2837
by the European afternoon, further from a May 18 peak
of $1.3048, the pound's strongest level since September last
The assumption that a landslide election win for May would
strengthen her hand over hardline Brexiteers in her ruling party
and allow her to negotiate a smoother departure from the
European Union, has given sterling a near 4 percent bump since
she announced the election.
That view, however, has been challenged by recent polls.
"We've always been concerned the market is probably buying
too much the large majority scenario for the Tory party and
sterling is vulnerable in the near term to headwinds," said
Kamal Sharma, currency strategist at Bank of America Merrill
Lynch in London.
"The move on the opinion polls is not wholly surprising
given that we've seen similar dynamics heading into other
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
(Reporting by Ritvik Carvalho; additional reporting by
Singapore Markets Team; Editing by Toby Chopra)