- Dollar slips, support from higher UST yields fades

- Euro/dollar recovers losses, but stays below 14-mth high

- Analysts expect currency consolidation before U.S. data (Adds comment, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, Oct 27 (Reuters) - The dollar slipped against the euro on Tuesday, pausing from the previous day's broad gains as the yield on 10-year U.S. government bonds retreated from a two-month high, removing some support for the U.S. currency.

The euro inched up, finding its footing after stumbling nearly a full percent against the dollar on Monday in a move that pulled the single currency away from a 14-month high.

The dollar rallied the previous day after the 10-year Treasury yield rose on speculation the Federal Reserve may signal a tightening in monetary policy down the road, while the market also fretted about a record debt sale this week.

Higher Treasury yields had expanded the spread between U.S. and euro zone government debt to its widest in two months and raised the appeal of dollar-denominated assets.

But dollar gains quickly sputtered as the rise in yields lost some momentum, leaving investors still in favour of currencies with higher yields, including the Australian and New Zealand dollars.

The move yesterday was driven by interest rate differentials that went in favour of the dollar, said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.

(But) even at these levels, yields aren't high enough for a sustained dollar rally.

By 0847 GMT, the euro was slightly higher on the day at $1.4875, pulling back from the day's low of $1.4850. Still, the single currency remained well below $1.5064 hit on Monday, its highest since August 2008.

Some analysts said the euro's retreat from its 14-month peak had been driven by the single currency's inability to sustain its rally above the psychologically key $1.50 region, although another run at that level was expected in the near term.

Despite a broad pullback in the dollar on Tuesday, it touched a one-month high against the yen at 92.33 yen as yield differentials was still seen as being supportive to the U.S. currency against its lower-yielding Japanese counterpart.

The high-yielding Australian and New Zealand currencies were largely flat on the day. 


The dollar has been a favoured trade to sell against higher-yielding currencies this year, with the prospect of low U.S. rates for a prolonged period undermining it.

Data late last week showed currency speculators have increased their bets against the dollar, and analysts said the heavy short positioning made investors hesitate to sell the dollar much further, creating some conditions for a pullback.

The dollar index .DXY, a measure of the greenback's performance against six other major currencies, fell 0.2 percent to 75.934, but above a 14-month low of 74.94 set last week.

Currencies are seen consolidating near current levels ahead of U.S. consumer confidence numbers for October and house price index data for August, both due later in the day. Also, the market is waiting to see third-quarter U.S. gross domestic product data on Thursday. (Additional reporting by Tokyo Forex Team, editing by Chris Pizzey)