Investing.com – The dollar steadied near two-week highs in early European trade on Thursday, helped by rising bond yields and growing confidence that the Federal Reserve won’t cut interest rates anytime soon.
At 04:35 ET (0835 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down slightly at 104.940, having earlier hit its highest level since May 14 at 105.17 after rising by 0.5%. in the previous session.
Safe-haven dollar in demand
A stream of stronger-than-expected economic data, hawkish comments from some Fed officials and a series of poorly received auctions sent bond yields soaring, spurring a rush to safe haven assets and a rally in the dollar.
Confidence is growing that the Fed won’t cut interest rates anytime soon, and traders are looking for confirmation from Friday’s data, the Fed’s preferred inflation gauge, that inflation remained steady through April.
Before that, revised first-quarter data will be published on Thursday, which is expected to demonstrate the continued strength of the US economy. The strength of the economy gives the Fed more room to keep rates high for longer.
“A series of softer US Treasury auctions and a sell-off in the longer-term bond market are weighing on risk assets and providing some support to the dollar,” ING analysts said in a note.
“It’s possible this is just a short-term blip ahead of key US data on Friday, but it’s a trend worth watching.”
Euro rebounds from two-week low
In Europe, trading rose 0.1% to 1.0810, bouncing off a two-week low ahead of eurozone business confidence data later in the session and then the eurozone consumer price index later in the week.
“Some modest improvement across the board is expected, but as we saw in Germany’s IFO on Monday, the rise in sentiment is likely to be more modest than euphoric,” ING analysts said.
The bank is expected to announce interest rate cuts next week, but uncertainty about what to do next could be affected by Friday’s inflation release.
fell 0.1% to 1.2697 after sterling fell to a two-month low during the previous session.
Yen rises ahead of Tokyo inflation report
In Asia, trade traded 0.4% lower at 157.03, but the pair remained close to recent highs amid continued weakness in the yen.
Focus has now turned to the upcoming report due on Friday to provide more insight into the Japanese economy. Any signs of rising inflation could bring some relief to the yen.
Shares traded 0.1% lower at 7.2461 amid growing pressure from concerns about the sluggish Chinese economy.
data from China will be released on Friday.