Dollar plunges as bonds stabilize, while British pound and New Zealand dollar gain


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Euro, Hong Kong Dollar, US Dollar, Japanese Yen, British Pound and 100 Chinese Yuan banknotes are seen in this illustration, January 21, 2016. REUTERS / Jason Lee / Illustration / File Photo

NEW YORK, Oct. 19 (Reuters) – The dollar fell on Tuesday as the rapid rise in U.S. Treasury yields came to a halt and other currencies, including the pound, were boosted by rate hike expectations of interest earlier than expected.

The greenback hit a one-year high against a basket of other currencies last week as Treasury yields surged and investors bet the Federal Reserve may have to hike rates to deal with stubborn inflation high.

Yields appeared to stabilize on Tuesday, however, reducing demand for the greenback.

The dollar’s decline on Tuesday was also likely exaggerated by technical factors as investors offloaded long positions.

“The movement in rates hardly explains the magnitude of the dollar’s decline,” Scotiabank analysts said in a report. “On the contrary, it looks like the long USD sell-off has snowballed into a wider positioning, triggering a technical reversal of the USD in general,” they said.

The dollar index against a basket of other currencies fell 0.27% for the last time to 93.67, after falling to 93.50, the lowest since September 28.

The euro gained 0.29% to $ 1.1644.

Currencies, including the British pound and the New Zealand dollar, are benefiting from expectations of rising interest rates.

The pound jumped 0.60% to $ 1.3810 as money markets integrated a cumulative 35 basis points of rate hikes by year-end. Read more

The New Zealand dollar gained 0.95% to $ 0.7152 after data on Monday showed consumer price inflation the fastest in more than a decade. Read more

Britain and New Zealand led short-term bond yields to rise, with short-term yields rising comparatively more than in the United States.

The Aussie hit a six-week high of $ 0.7476, ignoring the accommodating minutes of the last Reserve Bank of Australia meeting. Read more

The yuan hit a four-month high as fears of contagion from the debt problems of real estate giant China Evergrande faded and some of its peers paid off bond coupons. Policymakers said late last week the situation was manageable. Read more

The offshore yuan strengthened to 6.3788 to the dollar, the strongest since June 10.

In cryptocurrencies, bitcoin hit $ 63,338 for the first time since mid-April, approaching the all-time high of $ 64,895.22.

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Currency auction price at 9:30 a.m. (1:30 p.m. GMT)

Reporting by Karen Brettell; Additional reporting by Sujata Rao in London; Editing by Steve Orlofsky

Our Standards: Thomson Reuters Trust Principles.

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