* U.S. yields tumble as traders pare Fed rate-hike outlook
* U.S. trade deficit hits 10-year high; job growth slowing
* Risk aversion returns
(Updates market action, adds comment)
By Saqib Iqbal Ahmed
NEW YORK, Dec 6 (Reuters) - The dollar weakened against major
peers on Thursday as U.S. Treasury yields fell and traders scaled back
expectations on the number of rate hikes the Federal Reserve would
implement amid weakening economic data and heightened market volatility.
The benchmark 10-year yield hit a three-month trough of 2.826
percent. It was last down over 5 basis points at 2.867 percent.
The euro was 0.26 percent higher against the dollar at $1.1373.
"The problem for the dollar is really a decline in U.S.
yields and fading Fed expectations," said Shaun Osborne, chief FX
strategist at Scotiabank in Toronto..
Fed policymakers are still widely expected to raise interest rates
again at their Dec. 18-19 meeting, but the market focus is on how many
rate hikes will follow in 2019.
Interest rate futures implied traders see no more than one rate
increase from the Fed in 2019, compared with expectations a month
earlier for possibly two rate hikes, according to CME Group's FedWatch program.
The dollar has been under pressure this week as an inversion in
part of the U.S. yield curve raised a red flag for a potential
"There are growing concerns about the overall trajectory of
the U.S. economy," said Eric Viloria, FX strategist at Credit
Agricole in New York.
Some of the concerns stem from slowing global growth, he said.
If there is a slowdown in global growth, then the United States
will not be immune, Dallas Federal Reserve Bank's Robert Kaplan said
in an interview on CNBC.
The prospect of fading fiscal stimulus in the United States was
also hurting investors' confidence in the growth prospects for the
U.S. economy, said Viloria.
Data on Thursday showed the U.S. trade deficit jumped to a 10-year
high in October as soybean exports dropped further and imports of
consumer goods rose to a record high, suggesting the Trump
administration's tariff-related measures to shrink the trade gap
likely have been ineffective.
On Thursday, the greenback lost ground to the Japanese yen
and the Swiss franc , which investors traditionally flock to
during times of risk aversion, as global risk sentiment took a hit
after news of the arrest in Canada of a top executive of Chinese tech
giant Huawei prompted fears of a flare-up in U.S.-China trade
With reduced appetite for risk, the commodity-sensitive
currencies, including the Aussie and the kiwi , slipped against
"Currencies are behaving as one would expect against a
risk-averse backdrop," said Viloria.
The dollar was 0.4 percent lower against the Japanese yen, while
the Aussie fell 0.47 percent. The New Zealand dollar was 0.32 percent lower.
Sterling rose 0.38 percent thanks to the broadly weak dollar
though concerns on how the British parliament votes on Prime Minister
Theresa May's Brexit deal next week limited gains.
The Canadian dollar fell against its U.S. counterpart to a nearly
18-month low, as Bank of Canada Governor Stephen Poloz said the
economy was weaker than forecast and predicted low oil prices would
Graphic: World FX rates in 2018
(Reporting by Saqib Iqbal Ahmed; Editing by Dan Grebler and Alistair Bell)
((email@example.com; @SaqibReports; +1 646 223 6054;
Reuters Messaging: firstname.lastname@example.org))