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Updated February 7th, 2024 at 07:25 IST

Dollar under pressure following retreat from nearly three-month high

The pullback in the dollar was attributed by analysts to technical factors, following a two-day surge against the euro by as much as 1.4 per cent.

Dollar
Dollar | Image:Pixabay
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Dollar under pressure: The dollar found itself on the defensive Wednesday following a retreat from its nearly three-month peak against the euro, as declining US bond yields contributed to its downward trend.

The pullback in the dollar was attributed by analysts to technical factors, following a two-day surge against the euro by as much as 1.4 per cent. 

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This surge came after unexpectedly robust US jobs data and a more hawkish stance from Federal Reserve Chair Jerome Powell, which dampened expectations for an early interest rate cut.

US Treasury yields also reversed course from recent highs due to solid demand at a sale of new three-year notes, further diminishing support for the dollar.

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During early Asia trade on Wednesday, the dollar remained relatively unchanged at $1.0755 per euro after retreating 0.1 per cent on Tuesday. This retreat occurred after touching its strongest level since November 14 at $1.0722.

The US dollar index, which gauges the currency against six major counterparts including the euro, remained flat at 104.14 following a 0.29 per cent decline on Tuesday. It had previously reached its highest level since November 14th at 104.60 on Monday.

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Matt Simpson, senior market analyst at City Index, noted that while the dollar showed weakness on Tuesday, it still maintains a bullish daily structure. He suggested that a pullback to 139.50 could position it for further gains.

The dollar held steady against the yen at 147.905, after a 0.49 per cent decline overnight. This currency pair tends to be highly sensitive to movements in Treasury yields.

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Analysts and traders are closely watching next Tuesday's US CPI data as a pivotal factor for rate expectations. 

Currently, traders are pricing in a 19.5 per cent chance of a rate cut in March, according to the CME Group's FedWatch Tool, down from 68.1 per cent at the beginning of the year.

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James Kniveton, senior corporate forex dealer at Convera, highlighted the ongoing recalibration of financial markets' expectations for Federal Reserve policy. 

He suggested that if positive economic data, especially regarding inflation, persists in the US, the likelihood of earlier rate cuts could increase, potentially leading to further weakness in the greenback.

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(With Reuters Inputs)

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Published February 7th, 2024 at 07:25 IST

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