* Chinese yuan matched earlier a six-day low vs dollar
* Pound weaker against the euro, stable vs dollar
* Graphic: World FX rates in 2019
By Olga Cotaga
LONDON, Aug 20 (Reuters) - The euro hovered around a two-week low
versus the dollar as the U.S. currency held strong on Tuesday, boosted
by slightly higher Treasury yields, while political uncertainties in
Italy also kept the common currency subdued.
Yields on U.S. benchmark 10-year government bonds pulled away from
three-year lows , helped in part by the prospect of Germany ditching
its balanced budget rule to boost spending and on more economic
support measures by China.
Yields fell last week to cause an inversion of the short-dated and
long-dated yield curve, sending alarms through financial markets given
that several recessions in the past have been preceded by yield curve
inversions. The curve of the two-year and 10-year Treasury yields was
slightly steeper on Tuesday .
"The dollar is higher across the board, tracking the rebound
in yields. The prospect of Germany embarking on stimulus was the
turning point and the dollar has regained momentum since," said
Yukio Ishizuki, senior currency strategist at Daiwa Securities.
The dollar index was flat at 98.385 after rising to a
two-and-a-half week high of 98.40 earlier.
The euro was also flat at $1.1078 , but not far from the $1.1066
low it reached on Friday on lingering concerns over political
developments in Italy.
Prime Minister Giuseppe Conte is set to address parliament on
Tuesday afternoon (1300 GMT) to defend his record. He might hand in
his resignation immediately afterwards or could instead wait for a
formal vote to make it clear he is being unseated by the far-right
League. A vote has not yet been scheduled and there is widespread
uncertainty over how the political turmoil will end
Deputy Prime Minister Matteo Salvini pulled the plug on the ruling
coalition Movement earlier this month, hoping to trigger early
elections that would likely see him crowned as prime minister.
"The possible success of the no-confidence vote in Italy
today could push euro/dollar towards and even below the psychological
1.1000 level today," said Chris Turner, head of forex strategy at
"Though falls are unlikely to meaningful or persistent,"
he said, "because the negative spillover into the euro from
periods of political uncertainty in Europe has been somewhat limited
over the past year."
Elsewhere, a stronger dollar pushed the offshore Chinese yuan
lower to have it match a six-day low of 7.0770 against the greenback
earlier, though China's offshore yuan was last trading neutral at
The pound was down by 0.3% both against the dollar and the euro,
last at $1.2092 and at 91.55 pence against the euro .
British Prime Minister Boris Johnson made new waves by writing to
European Council President Donald Tusk on Monday to propose replacing
the Irish backstop with a commitment to put in place alternative
arrangements by the end of a post-Brexit transition period.
Johnson will meet both French President Emmanuel Macron and German
Chancellor Angela Merkel during the week and is also planning to meet
Ireland’s Prime Minister Leo Varadkar in September.
Market focus should shift to the annual symposium of global
central bankers starting on Friday at Jackson Hole, Wyoming.
(Reporting by Olga Cotaga; Additional reporting by Shinichi Saoshiro
in Tokyo; Editing by Jon Boyle)