* Dollar springs back against low-yielding currencies
* Yen near 4-month low as U.S. bond yields gain
* Risk-sensitive currencies supported
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Hideyuki Sano
TOKYO, Feb 17 (Reuters) – The dollar held the upper handagainst low-yielding currencies on Wednesday, hitting afive-month high against the yen as U.S. bond yields jumped onthe prospects of further economic recovery and a possibleacceleration in inflation.
Bitcoin traded just below the $50,000 mark, a dayafter the cryptocurrency hit that level for the first time,bringing its total market capitalisation to more than $900billion, as traders bet on its further acceptance among majorcompanies.
The dollar’s index against six other major currencies jumpedback from a three-week low of 90.117 hit on Tuesday to laststand at 90.665.
Soaring U.S. bond yields boosted the dollar, with the10-year yield rising to as high as 1.333% fromaround 1.20% at the end of last week.
“The move up in yields has been driven by increasinginflationary concerns amid a rise in energy prices along withthe prospect of a big U.S. fiscal stimulus and the globalrecovery entering a more solid stage as vaccine roll out lead tothe reopening of economies,” said Rodrigo Catril, senior FXstrategist at National Australia Bank in Sydney.
The yen, which is sensitive to U.S. yields, reacted the mostwith the dollar jumping to as high as 106.225 yen, its highestsince September, before retreating to 105.91 yen.
“I think the dollar’s downtrend is over. At the start of theyear, speculators were betting on a fall in the dollar below 100yen. They seem to have abandoned such a view now,” said YukioIshizuki, senior strategist at Daiwa Securities.
A sign of dwindling bets on the dollar’s fall against theyen is apparent in the options market, where short-term dollarcall options, or bets on the dollar, have become more expensivethan dollar puts, bets against the currency.
The one-week risk reversal spread is now infavour of dollar calls for the first time in almost five years.
“If one thinks U.S. yields will rise further, we could seemore gains in the dollar,” said Jun Arachi, senior currencystrategist at Rakuten Securities.
“I would say this trade could continue until BidenAdministration’s stimulus package will come into effect,possibly in March, at which point people could start unwindingtheir bets to ‘sell-on-fact'”.
Biden tried to build public support for his $1.9 trillioncoronavirus relief plan in a town hall.
The euro slipped slightly to $1.2085 though its fallwas less pronounced due to its gains earlier on Tuesdayfollowing strong German economic sentiment data.
The New York Federal Reserve’s Empire State manufacturingreport released on Tuesday offered an upbeat economic picture,with a rise in its “prices paid index” stoking fear of fasterinflation.
That optimism was echoed by St. Louis Fed…
Read More: FOREX-Dollar hits 5-month high against yen as inflation talk boost U.S.