* Dollar bulls concerned about steep U.S. Treasury yield falls
* Euro, yen's boost from previous session fades
* Investors eye U.S. November jobs data for trading cues
* Graphic: World FX rates in 2018
By Daniel Leussink
TOKYO, Dec 7 (Reuters) - The dollar struggled to recover against
its key rivals in Asian trade on Friday, hobbled by renewed
speculation of an imminent pause in the Federal Reserve's tightening
cycle, perhaps as soon as it delivers a widely expected rate hike
later this month.
Of particular concern for dollar bulls has been the recent sharp
falls in U.S. treasury yields, with an inversion of the yield curve
signalling a sharp economic slowdown or even a recession down the
Investors are now watching Friday's U.S. non-farm payrolls release
for November to gauge wage growth and labour market strength.
"We've already heard from (Fed Chairman Jerome) Powell that
he thinks the neutral rate has moved quite far in quite a short period
of time," said Bart Wakabayashi, Tokyo branch manager at State
"The guidance going forward will be key to yields and equity
market moves, which right now foreign exchange markets seem to be
Dollar investors were given more reason to be cautious after the
Wall Street Journal reported Fed officials are considering whether to
signal a new wait-and-see mentality after a likely rate increase at
their meeting in December.
The dollar index , which measures the greenback against a basket
of six major peers, was basically flat at 96.804 in early trade.
The index shed 0.3 percent during the previous session, closing at
one-week low and down 0.9 percent from a 17-month peak hit on Nov. 12.
The benchmark U.S. 10-year Treasury yield was last at 2.896
percent after dipping to its lowest level since late August overnight.
The dollar has slipped after Fed Chairman Powell said last week
that U.S. interest rates were nearing neutral levels, which markets
interpreted as signalling a slowdown in rate hikes.
The Fed is expected to raise interest rates again at its Dec.
18-19 meeting, which would be its fourth hike this year, but investors
are already focusing on how much further it might raise rates and
whether a pause is imminent.
Interest rate futures implied traders see no more than one rate
increase from the Fed in 2019, compared with previous expectations for
possibly two rate hikes, according to CME Group's FedWatch programme.
On Friday, the dollar rose slightly against the euro as well as
the Japanese yen , trading at $1.1373 and 112.70 yen per dollar, respectively.
The single currency had gained 0.3 percent against the dollar
during the previous session while the yen rose about a quarter of a percent.
The Australian dollar was down 0.1 percent at $0.7230, near a
three-week trough of 0.7192 hit on Thursday.
The greenback has been pressured this week by an inversion in part
of the U.S. yield curve seen as an early warning sign for a potential
The spread between the two-year and five-year U.S. Treasury yields
inverted this week and the two-year/10-year spread was at its tightest
in more than a decade amid a sharp fall in long-term rates.
Historically, the economy has taken anywhere between 12 months and
24 months to fall into a recession when the yield curve inverts.
Some market participants believe the dollar index may have peaked
out, State Street's Wakabayashi said.
"The dollar funding over the calendar year-end hasn't really
been as aggressive as we've seen in the past few years," he said.
"If the natural demand does not seem to be appearing in the
market, then I think the people who are holding on to those dollars
may look to unwind some of those trades."
(Reporting by Daniel Leussink Editing by Shri Navaratnam)
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