April 19, 2018 / 3:48 AM / a month ago

FOREX-Dollar supported as U.S. yields hover near 1-month highs

* Surge in long-term Treasury yields supports dollar

* But lingering ‘Trump risk’ concerns seen limiting gains

* Turkey’s lira buoyant after call for early snap elections (Adds details and quotes, updates prices)

By Shinichi Saoshiro

TOKYO, April 19 (Reuters) - The dollar was steady against a basket of its peers on Thursday, supported by higher long-term U.S. Treasury yields on improving investor appetite for risk assets, though lingering concerns over U.S.-China trade tensions checked the greenback.

The dollar index against a group of six major currencies was flat at 89.633 after edging up 0.1 percent on Wednesday.

The U.S. currency gained 0.15 percent to 107.410 yen, adding to the previous day’s modest gains.

The dollar’s gains were limited given the scope of the rise by the 10-year Treasury note yield, which climbed more than 5 basis points overnight for its biggest one-day surge since March 2.

“The dollar, particularly against the yen, has began re-establishing a correlation with widening yield differentials this month,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“While the spreads between U.S. yields and those in Japan and the euro zone continue to widen, the dollar cannot take full advantage due to lingering ‘Trump risk’,” Ishikawa said.

Ishikawa was referring to the broad uncertainty stemming from U.S. President Donald Trump’s trade and economic policies, as well as geopolitical posturing in the Middle East and elsewhere. The U.S.-China tariff standoff has heightened volatility in financial markets over the past month.

Diverging interest rate views have driven the spread between U.S. and German 10-year government bond yields above 230 basis points, the highest since late December 2016.

The euro had weakened to a 14-year low the last time the yield spread was at the current width. But it has been relatively immune to the current yield spread widening. The spread has increased more than 30 basis points over the past three months but the common currency has moved within a relatively narrow $1.2556-$1.2154 range.

The euro inched up 0.07 percent to $1.2383 after eking out small gains the previous day.

The yen showed little response to the U.S.-Japan summit, at which Trump and Japanese Prime Minister Shinzo Abe agreed to intensify trade consultations between the two longtime allies.

Turkey’s lira stood tall after rallying more than 2 percent against the dollar overnight after the country’s president Tayip Erdogan called for elections to be held in June, more than a year earlier than planned.

The lira was supported as Erdogan’s call for early elections was seen as the government’s recognition for the need for tighter monetary policy to combat inflation.

The lira last stood at 4.011 against the dollar, with the previous day’s surge moving it significantly away from a record low of 4.194 set last week.

Battered by concerns towards monetary policy and inflation, the lira is one of the worst performing emerging market currencies so far this year.

The Canadian dollar was another big mover, having slid 0.6 percent against the dollar after the Bank of Canada did not sound as hawkish as some had anticipated.

The BoC indicated on Wednesday that more interest rate hikes would be coming after it held its benchmark rate steady at 1.25 percent, but said it did not know when or how aggressive it would need to be to keep inflation in check.

“We maintain the same view held before this meeting; the BoC wants to raise rates in July and left the door wide open but we doubt that data will allow them to walk through it,” wrote strategists at Rabobank.

“Headline data may be relatively upbeat but a scratch below the surface unveils a very different picture.”

The loonie was a shade weaker at C$1.2637 per dollar , pulled away from a seven-week high of C$1.2528 reached before the BoC meeting.

The 10-year Treasury note yield was 2.863 percent after touching 2.876 percent overnight, its highest since March 22.

Reporting by Shinichi Saoshiro Editing by Shri Navaratnam and Sam Holmes

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