FOREX-Dollar heads towards 2-week lows as short bets hit 7-year highs


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    * U.S. Treasury report fails to surprise currency markets
    * Graphic: World FX rates in 2018

    By Saikat Chatterjee
    LONDON, April 16 (Reuters) - The dollar weakened on Monday
and headed towards a two-week low against a basket of rivals on
growing signs of relief that a U.S.-led strike on Syria would
not escalate further at a time when concerns over a trade war
has rattled global markets.
    Investors returned to the familiar theme of adding short
bets against the dollar, as a return in appetite for risk
manifested itself through higher bond yields and softer oil
prices.  MKTS/GLOB 
    Despite widening interest rate differentials in its favour
and the widest yield gap between two-year U.S. and German debt
for nearly three decades, the dollar's performance in recent
months has been closely correlated to swings in risk appetite.
    That is because though the U.S. central bank has kept on
track in raising interest rates, broader financial conditions
remained loose.    
    "Unless we see the geopolitical concerns and trade war fears
showing up in hard data, currency markets seem to be broadly
immune to the headlines," NN Investments chief investment
officer Valentijn van Nieuwenhuijzen said. 
    A weaker dollar has broadly coincided with a pick-up in
demand for riskier assets and vice versa and the Syria strikes
underlined that trend. 
    Against a broad basket of its rivals  .DXY , the dollar
edged 0.3 percent lower at 89.54. It has weakened 0.6 percent so
far this month, taking its year-to-date losses to nearly 3
percent, extending a theme firmly in place since last year.
    The dollar hit a two-week low of 89.36 last week.    
    "The military strikes were well telegraphed and we are
seeing a continuation in the broad market theme from last week
of a weaker dollar and favourable conditions for risk taking,"
said Credit Agricole currency strategist Manuel Oliveri.
    In a wider measure of dollar positioning  NETUSDALL=  that
includes net contracts on the New Zealand dollar, Mexican peso,
Brazilian real and Russian rouble, the U.S. dollar posted a net
short position valued at $27.21 billion, its biggest since
August 2011.*:nL1N1RQ1VT
    Other major currencies also remain trapped in trading
ranges, with the euro starting the week around $1.23, a level
around which it had traded all last week.
    The U.S. Treasury semi-annual report didn't jolt the
currency markets, with the Trump administration again refraining
from naming any major trading partners as currency manipulators
as it pursues potential tariffs and negotiations to try to cut a
massive trade deficit with China.  W1N10G016 
    Although the Japanese yen usually draws demand in times of
political tension and market turmoil due to its perceived
safe-haven status, the dollar's losses against it were small.
    "The reaction in currencies has been limited as President
Trump had provided advance notice about a possible strike on
Syria, giving speculators ample time to brace for the actual
event," said Yukio Ishizuki, senior forex strategist at Daiwa
Securities in Tokyo.
    "Many speculators are showing less of a response to
yen-supportive factors lately, after the Bank of Japan made
clear it was not going to normalise policy soon. This goes for
domestic factors as well, like falling support ratings for
(Japan Prime Minister Shinzo) Abe."
    Support for Abe, who is plagued by accusations of cronyism
and cover-ups, fell to 26.7 percent in a survey by private
broadcaster Nippon TV released on Sunday, the lowest since he
took office in December 2012.*:nL3N1RS09E
    Sterling was the big outperformer in currency markets with
the British currency vaulting half a percent above the $1.43
line  GBP=D3  as investors focused on data that could help shore
up expectations of a May interest rate hike.  GBP/ 

US financial conditions, rate rise
 (Reporting by Saikat Chatterjee; Additional reporting by
Shinichi Saoshiro in TOKYO; Editing by Mark Heinrich)
 ((; +44-20-7542-1713;
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