Feb 7, 2024: TOKYO (Reuters) – The dollar remained on the defensive on Wednesday after pulling back from its recent peak against the euro, a decline attributed in part to lower U.S. bond yields.
Analysts cited technical factors for the dollar’s retreat, which followed a two-day surge against the euro fueled by robust U.S. jobs data and more hawkish comments from Federal Reserve Chair Jerome Powell, dampening expectations of an early interest rate cut.
U.S. Treasury yields also declined from their recent highs, as solid demand emerged at a sale of new three-year notes, further weighing on the dollar’s momentum.
In Asian trading, the dollar edged lower to $1.0761 per euro after slipping 0.1% on Tuesday, retreating from its highest level since Nov. 14 touched at $1.0722.
The U.S. dollar index, which measures the greenback against six major currencies, remained flat at 104.12, following a 0.29% decline on Tuesday. It had reached its highest level since Nov. 14 at 104.60 on Monday.
While acknowledging the dollar’s recent weakness, analysts point out that the overall daily structure of the U.S. dollar index remains bullish. They suggest that a pullback to around 103.50 could set the stage for another upward movement.
Against the yen, the dollar held steady at 147.975 after sliding 0.49% overnight, with the currency pair closely tracking movements in Treasury yields.
Market participants are closely watching next Tuesday’s U.S. Consumer Price Index (CPI) data as a crucial factor influencing Fed rate expectations.
According to the CME Group’s FedWatch Tool, traders are currently pricing in a 21.5% chance of a rate cut in March, significantly lower than the 68.1% chance estimated at the beginning of the year.
“Financial markets are adjusting their expectations for Federal Reserve policy,” said James Kniveton, senior corporate forex dealer at Convera.