Dollar slips vs yen as Russia probe turns investors cautious

LONDON: The dollar slipped to an 11-day low against the yen on Tuesday, with investors turning cautious after news that investigators probing Russian interference in last year's U.S. elections had charged President Donald Trump's former campaign manager.

The greenback, which had strengthened to a 3 1/2-month high versus the Japanese currency on Friday, dipped briefly below 113 yen.

Against a basket of major currencies, the dollar also slipped, having fallen from its highest in three months at the end of last week on talk that the next chair of the U.S. Federal Reserve could steer policy in a more hawkish direction and on hopes that Trump could push through tax reform.

But the latest developments, which saw Trump's former campaign manager, Paul Manafort, and another aide, Rick Gates, charged with money laundering on Monday, turned investor attention back to U.S. political risks.

Some analysts said speculation that Fed Governor Jerome Powell was likely to become the next Fed chair - rather than economist John Taylor, who is considered the most hawkish of the candidates - was also weighing.

But Societe Generale strategist Kit Juckes, in London, said the key restraint on further strength in the U.S. currency was Treasury yields.

"This is almost gravity reasserting itself," he said. "Maybe I can take politics as the excuse, or Jerome Powell being favourite rather than John Taylor to run the Fed, but through all of it the underlying story is that bond yields are capped by a very low rate cycle and a lack of inflation."

The yen showed limited reaction after the Bank of Japan kept its monetary policy steady on Tuesday, as widely expected, while slightly lowering its inflation forecast for the current fiscal year.

The euro eased 0.1 percent to $1.1644, close to a three-month low of $1.1574 touched on Friday. Investors were eyeing euro zone inflation data due at 1000 GMT after a weaker-than-expected set of price growth data from Germany on Monday.

"The downward surprise would have to be quite significant for euro exchange rates to budge at all," Commerzbank strategists wrote in a note to clients.

"The rate outlook is likely to only become relevant again for the euro once we see a significant upward inflation dynamic bringing rate hike expectations forward. As we however expect price pressures in the euro zone to ease further in the near term, the euro is likely to pretty much remain stuck."

Elsewhere, the Australian dollar was weighed down after China's official factory PMI showed manufacturing growth cooled more than expected in October.

The Aussie, which is sensitive to Chinese economic data because of Australia's strong trade ties to China, was down 0.2 percent on the day at $0.7675.