By Tommy Wilkes
LONDON (Reuters) - The dollar rose on Thursday as rival currencies struggled following more dovish soundings from central banks, while the yen gained as investor worries grew.
The Reserve Bank of New Zealand joined a growing list of central banks that had turned dovish amid signs of a slowing global economy, saying on Wednesday its next move in interest rates was likely to be down.
With many currencies on the defensive, the dollar has brushed aside a decline by benchmark U.S. Treasury yields to 15-month lows. The dollar index against a basket of six major currencies gained 0.3 percent to 97.028 and headed for its third day of gains.
Analysts at ING said investors had gone too far in expecting a U.S. rate cuts this year, but that the dollar remained vulnerable for now.
"For the short term, however, DXY looks vulnerable to the massive erosion in USD yield differentials and could easily head back to 96," they wrote.
The euro weakened to $1.1237. It has lost half a percent this week as the benchmark 10-year German bund yield fell to a 2 1/2-year low of minus 0.09 percent. Dovish comments from ECB President Mario Draghi did little to support the euro on Wednesday.
The New Zealand and Australian dollars managed to recover somewhat after the New Zealand central bank's dovish shift whacked both currencies lower on Wednesday.
Growth-sensitive currencies have taken a beating recently on rising risks to the global economy, highlighted by the shakeout in U.S. bond yields, which markets have read as a signal of recession.
"Treasury yields are still at attractive levels relative to those in the euro zone and now New Zealand, which has just turned dovish," said Takuya Kanda, general manager at Gaitame.Com Research Institute.
The yen rallied 0.4 percent to 110.13 to the dollar as Japanese shares fell, but it was still some distance away from Monday's six-week high of 109.70.
Broader risk aversion in markets, particularly in Asian stocks, also supported demand for the yen, which is considered a safer place to park cash in times of uncertainty.
Sterling fell toward $1.31, erasing its gains on Wednesday, as Prime Minister Theresa May's offer to quit failed to sway hard-line opponents to back her Brexit withdrawal deal.
The pound was 0.4 percent lower at $1.3135 by 0820 GMT.