FOREX-Dollar falls to early January lows; yuan rally gets noticed

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(Revises throughout, adds new comment, updates prices, new byline, changes dateline, previous LONDON) * Dollar index back below 90; euro above $1.22 * Chinese yuan gains to 6.40 to dollar, state banks intervene * Interest rate trajectories drawing attention * Graphic: World FX rates By David Henry and Ritvik Carvalho NEW YORK/LONDON, May 25 (Reuters) - The dollar hit 4-1/2 month lows against major peers on Tuesday, as markets seemed to accept U.S. Federal Reserve arguments that monetary policy should stay easy because inflationary forces are broadly weak, while China state-owned banks were seen trying to curb a yuan rally. The onshore yuan appreciated to 6.4016 per dollar, the strongest since 2018, after opening at 6.4110. China's major state-owned banks, four sources said, were seen buying U.S. dollars at around 6.4 yuan in the Asian afternoon in a move viewed as an effort to cool a yuan rally led by its offshore counterpart. The weakness of the dollar came as U.S. market interest rates slipped again and yield on benchmark 10-year Treasuries hit fresh two-week lows and was at 1.579% in mid-morning in New York. Interest rates in many other developed countries have climbed in the past month and made their currencies more competitive against the dollar, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. The outlook at the moment is for that difference to continue, he added. "The Federal Reserve seems to be behind several other central banks in adjusting and recalibrating monetary policy," Chandler said. Since the end of March the dollar has been losing value on the belief that low U.S. rates will drive cash abroad as investors move to capture gains from elsewhere around the world as economies recover from the pandemic. The dollar index against major currencies was off 0.2% in the morning in New York after having fallen as much as 0.3% to 89.533, its lowest since Jan. 7. The euro climbed to early January levels and was last up 0.3% on the day to $1.2249. Strategists have said the dollar is likely be weak until markets see stronger U.S. economic data and interest rates. Stronger data could come on Friday with new readings on U.S. core consumer prices in April and a survey of purchasing managers. Comments from Federal Reserve officials are keeping down U.S. yields, said Jeremy Stretch, head of G10 FX strategy at CIBC. "That's maintaining the weaker dollar narrative," he said. Dovish comments from Fed speakers have provided backing for the view that any policy tightening is not happening soon. Sterling, which had run up about 1.2% over the past three weeks while other majors have steadied or even slipped, was stalled at $1.4136 as though it could not break above $1.42. Cryptocurrencies Bitcoin and Ether was off about 3% for the day in the morning in New York. ======================================================== Currency bid prices at 10:23AM (1423 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index 89.6820 89.8550 -0.18% -0.332% +89.8670 +89.5330 Euro/Dollar $1.2249 $1.2217 +0.27% +0.26% +$1.2266 +$1.2213 Dollar/Yen 108.8800 108.7650 +0.11% +5.39% +109.0600 +108.5650 Euro/Yen 133.36 132.85 +0.38% +5.07% +133.6000 +132.8400 Dollar/Swiss 0.8961 0.8967 -0.06% +1.29% +0.8971 +0.8931 Sterling/Dollar $1.4136 $1.4155 -0.11% +3.49% +$1.4211 +$1.4123 Dollar/Canadian 1.2059 1.2047 +0.08% -5.32% +1.2066 +1.2030 Aussie/Dollar $0.7762 $0.7754 +0.14% +0.93% +$0.7776 +$0.7747 Euro/Swiss 1.0975 1.0956 +0.17% +1.55% +1.0984 +1.0949 Euro/Sterling 0.8663 0.8626 +0.43% -3.07% +0.8671 +0.8620 NZ $0.7239 $0.7216 +0.33% +0.82% +$0.7250 +$0.7209 Dollar/Dollar Dollar/Norway 8.2935 8.3290 -0.34% -3.33% +8.3490 +8.2910 Euro/Norway 10.1594 10.1790 -0.19% -2.94% +10.2285 +10.1555 Dollar/Sweden 8.2539 8.3119 -0.45% +0.70% +8.3197 +8.2503 Euro/Sweden 10.1108 10.1564 -0.45% +0.34% +10.1647 +10.1124 (Reporting by David Henry in New York and Ritvik Carvalho in London Editing by Alistair Bell)

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