By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The dollar fell broadly on Tuesday as U.S. Treasury yields slipped, feeding fears that the Federal Reserve could pause in its rate-hike cycle, while an inversion in part of the yield curve was taken as a red flag for a potential recession.
The dollar, which started the week on a weak footing as a thaw in trade tensions between Washington and Beijing sapped demand for the safe-haven greenback, extended its fall as investors fretted about an inversion of the short end of the U.S. yield curve in bond markets.
The curve between U.S. three-year and five-year Treasury notes and between two-year and five-year notes inverted on Monday – the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt.
Analysts expect the two-year, 10-year yield curve – seen as a predictor of a U.S. recession – to follow suit.
While interest rate hikes have sent short-dated yields higher, tepid inflation and slowing economic growth expectations have kept longer-dated yields pinned down.
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