H.G Markets :

On Wednesday, the dollar continued its retreat from a nearly three-month high against the euro, following a decline in U.S. bond yields. Analysts attributed the dollar’s pullback to technical factors, which came after a two-day rally against the euro, driven by unexpectedly strong U.S. jobs data and more hawkish comments from Federal Reserve Chair Jerome Powell, dampening expectations for an early interest rate hike.

U.S. Treasury yields also reversed from their highs due to strong demand at a sale of new three-year notes, reducing support for the dollar. The dollar was down 0.1% to $1.0762 per euro, after retreating 0.1% on Tuesday, when it had earlier touched its strongest level since Nov. 14 at $1.0722. The U.S. dollar index, which measures the currency against six major peers, including the euro, fell 0.04% to 104.10, following Tuesday’s 0.29% slide. It had reached the highest since Nov. 14 at 104.60 on Monday.

Major currencies continue to show resilience against the renewed strength of the U.S. dollar, preventing a further rally in the U.S. Dollar Index above 104.50. The impact of long-term yield dynamics on the dollar remains crucial, with the U.S. Treasury 10-year yield now off from peaks above 4.15%, which has not supported further appreciation of the greenback. A sharper-than-expected decline in industrial production in the euro zone’s largest economy had no impact on the euro, as Germany’s industrial slowdown is well-known, according to Chris Turner, Global Head of Markets at ING.

The dollar edged 0.08% higher against the yen to 148.07, after sliding 0.49% on Tuesday. This currency pair is highly sensitive to movements in Treasury yields. Analysts and traders are focusing on next Tuesday’s U.S. inflation data as a key test for Fed rate expectations. Traders are currently pricing in a 21.5% chance of a rate cut in March, according to the CME Group’s Fed Watch Tool, compared with a 68.1% chance at the beginning of the year.

Financial markets are recalibrating their expectations for Federal Reserve policy. If positive economic data, particularly on inflation, persists in the U.S., the tide could turn towards earlier rate hikes, potentially weakening the greenback further.