FOREX-Dollar firms after U.S. yield spike, hits six-month high versus yen

    (Corrects day in first paragraph)
    * Rise in yields globally has sparked inflation fears
    * Aussie, bitcoin among losers as risk appetite sours
    * Graphic: World FX rates

    By Kevin Buckland
    TOKYO, Feb 26 (Reuters) - The U.S. dollar touched a fresh
six-month high versus the yen and extended a rebound from a
three-year lows to the Aussie on Friday, lifted by a sharp
increase in U.S. bond yields overnight.
    Government bonds, and particularly U.S. Treasuries, have
become the focal point of markets globally, after traders
aggressively moved to price in earlier monetary tightening than
signalled by the Federal Reserve and its peers.
    Asian stocks extended a global equity sell-off, with risk
appetite souring as the surge in yields fomented inflation
worries. Emerging-market and commodity-linked currencies
continued to retreat Thursday, while cryptocurrencies stabilised
after tumbling overnight.
    "The market has gotten more and more confident about how
strong the global economy could look in the second half of the
year, and implied in that is increasing skepticism that central
banks will be able to honor the promises they've given that
rates are not going anywhere," said Ray Attrill, head of forex
strategy at National Australia Bank in Sydney.
    "The decline in bonds spooked equities," leading to "classic
U.S. dollar safe-haven support," he said.
    The dollar index edged up to 90.38, holding on to a
0.2% rise from Thursday, when it rebounded from losses of as
much as 0.26% before the bond tender. That leaves it down less
than 0.2% for the month, following January's 0.6% gain.
    The greenback was little changed at 106.165 yen
after earlier touching 106.43 for the first time since
September. It has strengthened 2.8% this year after the first
back-to-back monthly increases since mid-2018, putting the yen
among the worst performing major currencies in 2021.
    Both the dollar and yen are traditional haven currencies,
but the yen tends to decline when U.S. yields rise, whereas the
dollar tends to strengthen.
    Bond yields have climbed this year on the outlook for
massive fiscal stimulus amid continued ultra-easy monetary
policy, led by the United States.
    An acceleration in the pace of vaccinations globally has
also bolstered what has become known as the reflation trade,
referring to bets on an upswing in economic activity and prices.
    In recent days though, a rise in inflation-adjusted bond
yields has accelerated, indicating a growing belief that central
banks may need to pare back ultra-loose policies, despite their
dovish rhetoric.
    "The fixed income rout is shifting into a more lethal phase
for risky assets," after initially being interpreted as a "story
of improving growth expectations," Westpac strategists wrote in
a client note.
    "It appears to be the case that bond markets are 'taking on'
the central bankers' world view, and standing in front of the
current momentum is unwise."
    The benchmark 10-year Treasury yield surged
above 1.6% overnight for the first time in a year, after an
auction of $62 billion of 7-year notes was met with weak demand.

    The Australian dollar continued its retreat after
topping $0.80 on Thursday for the first time since February of
2018, declining 0.6% to 0.78195.
    New Zealand's currency dropped 0.4% to $0.7336 after
reaching $0.7463 Thursday, a level not seen since August 2017.
    The Canadian dollar weakened 0.1% to C$1.2620 after
falling from its own three-year top to the greenback at C$1.2468
    The euro slid 0.2% to $1.21475 after touching a
seven-week high of $1.22435 on Thursday.
    Cryptocurrencies remained lower after tumbling overnight.
Bitcoin changed hands at $46,443 following Thursday's
5% slide, while ether traded at $1,473 following a 9%

    Currency bid prices at 110 GMT
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change
 Euro/Dollar                  $1.2156        $1.2175     -0.14%         -0.49%      +1.2185     +1.2137
 Dollar/Yen                   106.2270       106.2100    +0.02%         +2.85%      +106.4170   +106.1700
 Euro/Yen                     129.14         129.35      -0.16%         +1.75%      +129.5300   +128.9900
 Dollar/Swiss                 0.9054         0.9051      +0.04%         +2.35%      +0.9066     +0.9049
 Sterling/Dollar              1.3991         1.4009      -0.14%         +2.39%      +1.4024     +1.3950
 Dollar/Canadian              1.2619         1.2605      +0.09%         -0.93%      +1.2647     +1.2598
 Aussie/Dollar                0.7848         0.7870      -0.27%         +2.03%      +0.7882     +0.7823
 NZ                           0.7348         0.7370      -0.28%         +2.34%      +0.7380     +0.7310

All spots
Tokyo spots
Europe spots
Tokyo Forex market info from BOJ

 (Reporting by Kevin Buckland; Editing by Stephen Coates)

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