* U.S. dollar firms after hitting seven-week low
* 10-year U.S. Treasury yield pops to 1.6%
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E (Updates prices, adds byline)
By Karen Brettell and David Henry
NEW YORK, Feb 25 (Reuters) - The dollar index lifted off a seven-week low on Thursday after yields on 10-year U.S. Treasuries jumped as high as 1.6% following weaker than expected bids in a U.S. government debt auction.
The move was the latest example of currency markets taking their cue from bonds, which have been moving on the changing outlook for economic growth and inflation following unprecedented government stimulus and monetary easing along with increasing COVID-19 vaccinations.
The dollar was up 0.13% against a basket of currencies =USD in the early New York afternoon after dipping as much as 0.26% to 89.677, its lowest since Jan. 8.
The 10-year Treasury yield US10YT=RR was 1.50%, still up 11 basis points on the day.
The rise in bond yields, after adjusting for inflation, has accelerated in recent days, indicating a growing belief that central banks may begin to pare back ultra-loose policies, even as officials maintain a dovish rhetoric.
"It has been a global move," said Vassili Serebriakov, an FX strategist at UBS in New York. "Those higher bond yields are a symptom of expectations of a strong economic rebound after the pandemic."
Data on Thursday showed that fewer Americans filed new claims for unemployment benefits last week amid falling COVID-19 infections. Reserve Chair Jerome Powell reiterated on Wednesday that the U.S. central bank would not tighten its policy until the economy improves. currencies, including the Australian, New Zealand and Canadian dollars, all hit three-year highs earlier in the day as their bond yields surged.
"The U.S. has actually lagged a lot of these other countries in terms of the yield moves,” said Erik Nelson, a macro strategist at Wells Fargo (NYSE: WFC ) in New York, noting that New Zealand's 10-year government bond yield had gained 18 basis points on Thursday. NZ10YT=RR
The Canadian dollar CAD=D3 got as far as 1.2468 per U.S. dollar, but was last at $1.2569.
The euro rose to a three-week high, gaining 0.5% before backing off. It was last up 0.04% at $1.2175. EUR=EBS
The safe-haven Japanese yen, which tends to underperform when global growth improves, weakened as far as 106.29 yen per dollar. JPY=D3
“Some of the currencies that typically don't do well in a global rebound are lagging,” Serebriakov said. Changes in the dollar have been different against different currencies recently. "It's not just across the board the way it was last year when everything was driven by U.S. real yields falling and selling dollars across the board.”
Currency bid prices at 1:43PM (1843 GMT) Description
U.S. Close Pct Change
+106.3950 +105.8800 Euro/Yen
+129.9700 +128.7900 Dollar/Swiss
+0.9029 Sterling/Dollar GBP=D3
+$1.4001 Dollar/Canadian CAD=D3
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates
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