Reuters News - Dollar drops as U.S. Treasury yield curve inversion sparks recession fears

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.

The dollar was 0.65 percent lower against the Japanese yen, which tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation. The euro was 0.17 percent higher.