Aug 19 ( ) - The U.S. dollar slipped against major peers on Wednesday as a selloff in Treasuries eased, with investors counting on minutes from the Federal Reserve's latest policy meeting to offer fresh guidance later in the day. A light data calendar this week has left markets hungry for catalysts, potentially putting greater emphasis on the minutes. The document is expected to offer a comprehensive read on policymakers' thinking at a time when Fed Chair Kevin Warsh has been reticent on the rate outlook and renewed Middle East tensions are adding to the unease.
The euro rose 0.31% to $1.1611, remaining close to the two-month high touched earlier this week. Sterling was 0.22% higher at $1.3562 after data showed UK inflation in July rose in line with expectations. The Japanese yen also strengthened 0.35% to 159.04 per dollar, pulling away from the closely watched 160 level after giving back much of its intervention gains.
"Japan is struggling with structural problems. But I think the central banks have a strong incentive to keep the yen orderly," Tom Samuelson, chief investment officer at Vineyard Global Advisors, said. The dollar index, which measures the U.S. currency against six major peers, was down 0.29% at 99.36.
Treasuries appeared to be easing. The yield on the benchmark U.S. 10-year Treasury note declined to 4.696%, while that on the 30-year bond dipped to 5.283% after hitting its highest level in nearly 20 years. But some cautioned against complacency, warning that yields were still elevated and an increase could reverberate across stocks, bonds and currency markets. Samuelson said a 4.8%-5% 10-year Treasury yield would mark the "warning track." "If we push through 4.8% to 5% on the 10-year Treasury, it can cause jitters and compress valuations of high-flying technology stocks," he added.
The Fed minutes are set to be released at 2 p.m. Eastern Time (1800 GMT) on Wednesday. MIDDLE EAST IMPASSE KEEPS INFLATION RISK ALIVE Data released during recent weeks pointed to a softer U.S. economy, including unexpected job losses in July and mild inflation readings, leading investors to scale back rate-hike bets.
"If the Fed does not follow through with the rate hikes that are being discounted, the upside for bond yields should be very limited here," Harvinder Kalirai, chief global fixed income and currency strategist at Alpine Macro, said in a client webcast. "The labour market and inflation surprise are rolling over and usually that coincides with a narrowing in the dollar's yield advantage, and that feeds through into a softer dollar." Meanwhile, a stalemate in the Middle East lifted oil prices to nearly three-week highs, keeping the inflation risk alive. President Donald Trump said on Tuesday there were no talks with Iran and that the Strait of Hormuz was open.
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