US Dollar Slumps from 2-Year Peak Amid US Bond Yield Slowdown

The US dollar has retraced mildly over the past 24 hours against most counterparts, as US yield gains slowed following the release of lower-than-expected inflation data earlier this week.

The Greenback retreated from a two-year peak of 100.5 on Wednesday, with the bearish sentiment still in place on Thursday. At the time of writing, the US dollar index (DXY) trades down by 0.20%.

That said, other top currencies took the chance to pare some losses against the dollar, with the Japanese yen recovering from a 20-year low, despite remaining broadly weaker.

Traders on the Sidelines Ahead of ECB Meeting as US Bond Yields Declines

In the meantime, investors are on the sidelines ahead of the European Central Bank meeting later today, as analysts wait to see if the ECB would adopt a hawkish stance like some of its global peers. That said, the euro and the British pound have regained some ground from the greenback, with the latter hitting a nine-day high of 1.3147 in the London session on Thursday.

Commenting on the prevailing market outlook, senior currency strategist at TD Securities Singapore Mitul Kotecha explained: “Today’s focus will be the ECB meeting, and we’re looking for a relatively hawkish outcome, so that might give a bit of support to [the] euro in the near-term. We’re seeing this $1.08-1.10 range being where euro-dollar seems to be settling for now.”

Highlighting the role US yields played in the current retrace seen in the USD, Ray Attrill, head of FX strategy at the National Bank of Australia, noted: “At the beginning of the week, I was saying everything followed from the ongoing grind higher in US yields, equities were off, the dollar was soaring, and now because of what’s happening in Treasuries, everything has reversed.”

The benchmark 10-year Treasury is at 2.686% or -0.10%. The instrument jumped earlier this month amid expectations of a more aggressive US Fed monetary policy tightening to tackle rising inflation and peaked at 2.836% on Tuesday.