* Dollar company against euro, yen with better US economic outlook
* The ECB is more cautious about higher bond yields
* ISM survey shows US production in 3 years
* China’s regulator says it is taking proactive steps against housing bubbles
* Graphics: World exchange rates tmsnrt.rs/2RBWI5E
TOKYO, March 2 (Reuters) – The dollar stood firm against its low-yield peers on Tuesday on efforts to accelerate economic recovery in the US and expectations that the US Federal Reserve will show greater tolerance for higher bond yields than other central banks.
Risk-sensitive currencies bounced back from strong gains the day before, as China’s chief financial regulator discussed the need to proactively take measures to stabilize the housing market, while expressing caution against the risk of bubbles bursting in foreign markets.
The dollar index rose 0.2% to 91.176, hitting a three-week high closer to its February high of 91,600.
The US currency rose to as high as 106.93 yen, the highest since the end of August, and most recently it stood at 106.78 yen while the euro fell 0.2% to $ 1.2026, hitting the lowest level of almost a month.
“The jury is still out on whether the sale of the bond market is over. But people expect the Bank of Japan to keep track of bond yields, which means there will be a higher yield premium for the dollar, says Kazushige Kaida, head of foreign exchange sales at State Street Bank’s Tokyo branch.
The euro was under pressure when top officials from the European Central Bank sounded the alarm over rising bond yields.
President Christine Lagarde said the ECB would prevent a premature increase in borrowing costs for businesses and households.
Politician Francois Villeroy de Galhau was even clearer, saying that some of the recent increases in bond yields were unjustified and that the ECB must push back with the flexibility included in its bond buying program.
Traders were quick to recognize the marked difference in tone between the ECB and the Federal Reserve.
Richmond Federal Reserve President Thomas Barkin said on Monday that the rise in long-term bond yields so far seems to indicate an adjustment to stronger growth and inflation prospects.
Atlanta Fed President Raphael Bostic said last week that bond yields remain comparatively low, while Federal Reserve Chairman Jerome Powell has not seemed unduly concerned about rising bond yields.
“Central banks continue to take different views on the signals from recent interest rate hikes. The US Fed takes this as a positive signal, “said Tapas Strickland, Head of Finance and Markets at the National Australian Bank in Sydney, in a note.
The US economic recovery is expected to be on firmer ground, reinforced by the prospect of a $ 1.9 trillion aid package and successful expansions of COVID-19 vaccinations.
A study by the Institute for Supply Management (ISM) released on Monday showed that US manufacturing activity increased to a three-year high in February amid increased order intake.
On the other hand, the Australian dollar fell as much as 0.45% before erasing some losses to trade at $ 0.7776, after the Reserve Bank of Australia pledged to keep interest rates historic.
At the same time as interest rates were kept at 0.1%, it emphasized that the targets for employment and inflation would probably not be achieved until 2024 at the earliest.
Elsewhere, bitcoin also jumped back in line with gains in risky assets, trading at $ 49,129 and pulling away from Sunday’s three-week low of $ 43,021.
Reporting by Hideyuki Sano, editing by Shri Navaratnam & Simon Cameron-Moore