May 21, 2019 / 12:50 AM / 7 months ago

FOREX-Dollar holds near 2-1/2-week peak on higher yields, trade tensions

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Bounce by U.S. yield from 8-wk lows, Sino-U.S. woes support USD

* Powell: early to judge trade, tariff impact on monetary policy

By Shinichi Saoshiro

TOKYO, May 21 (Reuters) - The dollar held near a 2-1/2-week high on Tuesday, supported by higher U.S.-yields and as intensifying trade frictions between the United States and China boosted appetite for the safe-haven greenback.

The dollar index against a basket of six major currencies stood at 97.947 after brushing 98.036 overnight, its highest since May 3.

Global equities have taken a hit this week, with a U.S. crackdown on China’s Huawei Technologies driving chipmakers lower due to fears of a widening trade conflict.

“The dollar has established itself as a safe-haven and it attracts demand in times like this, with equities falling and market volatility rising,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

“The bounce by Treasury yields is another factor supporting the dollar. The recent drop by the 10-year yield seemed overdone, and with Fed’s Powell not providing clear hints of a rate cut this year, the rebound in yields could continue for a while.”

Federal Reserve Chair Jerome Powell said on Monday that it was premature to make a judgement about the impact trade and tariff issues could have on monetary policy.

Powell also said globalisation, technology and other forces have changed the way inflation works in the United States in a way that the Fed is still working to understand.

The 10-year Treasury note yield stood at 2.412% after bouncing about 2 basis points overnight. The yield had dropped to 2.354% last week, its lowest since March 28, after weak U.S. retail sales data increased rate cut expectations.

The euro was effectively flat at $1.1166 after slipping to $1.1150 the previous day, its lowest since May 3. The single currency is expected to remain on a nervous footing through the May 23-26 European parliamentary election.

The dollar stood unchanged at 110.115 yen after being nudged off a two-week high of 110.320 scaled the previous day.

The Australian dollar was 0.17% higher at $0.6920, still buoyant after rallying the previous day on a surprise election win by the country’s conservative government. The victory was seen injecting greater certainty into the financial markets. (Editing by Sam Holmes)

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