BUZZ-COMMENT-US recap: Dollar drifts lower as risk tone improves

Jan 21 (Reuters) - The U.S. dollar eased on Tuesday as U.S. shares advanced and energy prices slid following policy actions by returning U.S. president Donald Trump.

The favorable risk tone weighed on euro volatility with short-covering guiding it to a fresh three-week high though large 1.04 expiries slowed its gain. Bund yields firmed and France’s first syndicated bond sale since last year's snap election saw record demand.

The pound was little changed with gilt yields steady after a mixed U.K. employment data report and record demand for a 15-year gilt auction. British finance minister Rachel Reeves will urge company bosses to invest in the UK at Davos this week.

The yen edged higher, tracking the drop in Treasury 10-year yields and inflation break-evens. The currency saw a modest bout of buying after a Kyodo News report quoting sources as saying that the Bank of Japan will likely raise its key short-term interest rate by 25 basis points later this week.

The Canadian dollar and Mexican peso traded defensively after Trump suggested the U.S. could impose tariffs on Canada and Mexico by Feb. 1, countering expectations he might take a gradual approach. Prime Minister Justin Trudeau reiterated that his government is ready to respond to all scenarios if tariffs are imposed. Separately, Canada's annual inflation rate slowed in December to 1.8%.

Treasury yields were mixed as the curve flattened. The 2s-10s curve was up about 5 basis points to +28.7bp.

The S&P 500 rose 0.86% with nearly all sectors higher.

Oil slid 2.3% and nat gas dropped 5% after Trump declared a U.S. energy emergency and called for higher oil output.

Gold rose 1.37% on Trump policy risks while copper slid 0.73%.

Heading toward the close: EUR/USD +0.18%, USD/JPY -0.15%, GBP/USD +0.06%, AUD/USD +0.06%, EUR/JPY +0.09%, GBP/JPY -0.01%, AUD/JPY -0.12%.

For more click on FXBUZ

(Editing by Burton Frierson
Reporting by Robert Fullem)

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