BUZZ-COMMENT-US recap: Dollar rises for third day, pound slumps

Jan 9 (Reuters) - The dollar index rose for a third day on Thursday, guided higher by haven-related demand and an ongoing slump in sterling as rising gilt yields threaten the UK's fiscal outlook.

Trading volumes were muted by a national U.S. holiday in memory of former President Jimmy Carter, while the Treasury yield curve steepened after a slate of Fed speakers.

Kansas City Federal Reserve President Jeff Schmid showed a reluctance to cut rates again facing a resilient economy and inflation above its 2% target and Federal Reserve Governor Michelle Bowman said last month's interest-rate cut was the "final step" in monetary policy recalibration, with inflation risks dictating caution ahead.

Market focus turns to Friday's U.S. jobs report. Non-farm payrolls are expected to have risen 160K in December with hourly earnings advancing 0.3% for the month and unemployment steady at 4.2%. Numbers near estimates should keep Fed officials sounding hawkish and the dollar supported.

Sterling fell to a 14-month low of 1.2239 and option skews shifted further in favor of puts as gilt yields pressed higher. The pound recovered to trade 1.23 once yields stabilized though bears see UK political instability as a potential future driver.

Bank of England Deputy Governor Sarah Breeden said U.K. bond market moves had been orderly though officials are monitoring it and supports gradual rate cuts, adding that it was difficult to gauge the speed of easing. EUR/GBP rose to a two-month high 0.8406 before paring gains and GBP/JPY fell as short positions are built.

The euro stayed defensive though higher bund yields, EUR/GBP short-covering and large 1.03 option helped curb losses. There may have also been a rebalancing benefit as Asian central banks look to cap the dollar.

The yen gained against its G10 peers as investors pivot way from risk, though renewed weakness in Asia currencies and a solid U.S. jobs print would help limit its upside.

Front-end Treasury yields fell 2 basis points as the curve steepened. The 2s-10s curve was up about 2 basis points to +42.1bp.

The S&P 500 was closed for a holiday.

WTI oil rose 0.87% as cold weather boosted demand.

Gold rose 0.25% on haven demand while technical factors lifted LME copper.

Heading toward the close: EUR/USD -0.20%, USD/JPY -0.15%, GBP/USD -0.50%, AUD/USD -0.30%, DXY +0.08%, EUR/JPY -0.35%, GBP/JPY -0.63%, AUD/JPY -0.48%.

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(Editing by Burton Frierson
Reporting by Robert Fullem)

((robert.fullem@thomsonreuters.com;))