Dollar recovers, hits 10-week high vs yen, as bigger yields lure investors

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LONDON (March 1): The dollar moved higher on Friday, hitting a 10-week high against the yen, as a jump in US Treasury rates sent investors seeking higher yields into the greenback.

The US currency managed to claw back earlier losses after data showed US gross domestic product increased at a 2.6% annualised rate in the fourth quarter, above economists' forecasts for a 2.3% gain.

With US interest rates higher than in other developed economies, investors have been turning to the dollar for yield.

"What's the dollar rebound on? Is it sentiment or yield? The answer is it's just about yield," said Simon Derrick, currencies analyst at BNY Mellon.

The yen was the main casualty from the dollar's rise, losing half a percent to 111.89 yen, a 10-week low.

The yen, along with fellow safe-haven currency Swiss franc, had been supported earlier in the week when tensions between India and Pakistan and the collapse of US-North Korea talks rattled markets.

Against a basket of rival currencies the dollar rose 0.2% to 96.325.

It was a quiet end to the week elsewhere, with most major currencies stuck in tight trading ranges.

The euro slipped 0.1% to US$1.1360, keeping the single currency firmly in a trading range against the dollar it has been stuck in for several months.

"Although the Fed effectively declared in January that it was poised to cease hiking rates, bouts of dollar selling have been short-lived," said Daisuke Karakama, chief market economist at Mizuho Bank.

"Even as the Fed's policy normalisation process slows down, the dollar looks to be supported as long as the European and Japanese central banks are stuck with current policies."

The Australian dollar was slightly ahead at US$0.7096, stabilising after suffering sharp losses the previous day.

The Aussie took a hit on Thursday after a disappointing reading on Chinese manufacturing overshadowed a solid report on domestic business investment.

The benchmark 10-year US Treasury yield stood at 2.7204% after surging to 2.731% on Thursday, its highest since Feb 6.

Sterling was little changed and consolidated around US$1.3250 after its gains of the past week. Investors have bought back into the pound in the belief Britain will avoid a disorderly Brexit and could delay its departure from the European Union.