Dollar is under pressure after falling from its highest level in nearly 3 months

Easing Off Recent Highs

The dollar took a step back on Wednesday, relinquishing some of its recent gains against the euro, as US bond yields softened, adding pressure on the greenback.

Technical Corrections

The reversal in the dollar’s trajectory was largely attributed to technical factors, following a two-day surge against the euro triggered by robust US employment figures and cautious commentary from Federal Reserve Chair Jerome Powell, which tempered expectations of an imminent interest rate cut.

Yield Dynamics

US Treasury bond yields, which had been climbing, eased on Tuesday, partly due to robust demand for new three-year bonds, providing some respite for the dollar.

Currency Market Dynamics

In early Asian trading on Wednesday, the dollar remained relatively unchanged against the euro, hovering around $1.0755, after a marginal 0.1 percent slip in the previous session. Earlier, the currency had touched its strongest level since November 14 at $1.0722.

Assessing Dollar Strength

The dollar index, a measure of the dollar against a basket of major currencies, settled at 104.14 points after a 0.29 percent decline on Tuesday. Despite recent highs, the index had reached its peak since November 14 at 104.60 points just a day earlier.

Yen Relationship

Against the Japanese yen, the dollar maintained its stance at 147.905 yen following a 0.49 percent drop against the yen on Tuesday. Both currencies are closely linked to movements in Treasury yields.

Focus on Economic Indicators

Market participants are eagerly awaiting the release of the US Consumer Price Index (CPI) data next Tuesday, seen as a pivotal gauge for interest rate expectations.

Monetary Policy Outlook

Traders are currently pricing in a mere 19.5 percent probability of a rate cut in March, according to CME Group’s Fed Watch service, down significantly from 68.1 percent at the beginning of the year, underscoring the importance of upcoming economic data in shaping monetary policy expectations.