Investing.com – The U.S. dollar settled near two-week highs in early European trading on Thursday, supported by rising yields and increasing conviction that the Federal Reserve won't cut interest rates anytime soon.
At 04:35 EDT (08:35 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, fell slightly to 104.940, after earlier reaching its highest level since May 14 at 105.17, after a 0.5% advance. In the previous session.
The safe haven dollar is in demand
A series of stronger-than-expected economic data, hawkish comments from a number of Federal Reserve officials, and a series of poorly received auctions sent bond yields sharply higher, sparking a rush toward safer assets and supporting the dollar.
Conviction is growing that the Fed will not cut interest rates anytime soon, and traders are awaiting confirmation from Friday's data, the Fed's preferred measure of inflation, that inflation has remained steady through April.
Before that, a revised reading for the first quarter is due later on Thursday, and is expected to show continued resilience in the US economy. Strength in the economy gives the Fed more leverage to keep interest rates higher longer.
“A series of weaker US Treasury auctions and a sell-off at the longer end of the bond market are weighing on risk assets and providing some support to the dollar,” analysts at ING said in a note.
“This may just be a short-term fluctuation ahead of key US data on Friday, but it is a trend worth watching.”
Euro rebounds from two-week lows
In Europe, it traded 0.1% higher at 1.0810, bouncing off a two-week low ahead of Eurozone business confidence data later in the session and then the Eurozone CPI at the end of the week.
“Some modest improvement is expected across the board, but as we saw with the German Ifo release on Monday, the rise in sentiment seems likely to be more modest than euphoric,” analysts at ING said.
He is widely expected to announce a rate cut next week, but uncertainty over what follows could be affected by Friday's inflation release.
The British pound fell 0.1% to 1.2697, after falling to its lowest level in two months during the previous session.
Yen rises ahead of Tokyo inflation report
In Asia, trading fell 0.4% to 157.03, but the pair remained close to its recent highs, amid continued weakness in the yen.
The focus was now squarely on the next report, due on Friday, for more signals about the Japanese economy. Any signs of rising inflation could bring some relief to the yen.
Trading was down 0.1% at 7.2461, amid mounting pressure from concerns about a slowing Chinese economy.
Data from China is due on Friday.
