The dollar nursed its losses on Wednesday after taking a hit from solid eurozone economic data, a fall in US yields on heightened turmoil in Washington and downbeat housing data that reduced the expectations of a Federal Reserve rate hike next month.
The dollar index, which scaled a 14-year peak of 103.82 on January 3 on hopes of tax reform and stimulus measures from the administration of US President Donald Trump, gave back all of its “Trump bump” and wallowed near its lowest levels since November 9.
The index, which tracks the US currency against a basket of six major rivals, last stood at 97.929, down 0.2 per cent on the day.
Pressure on the dollar increased after news that Trump asked his now-dismissed FBI Director James Comey to end the agency's investigation into ties between former White House national security adviser Michael Flynn and Russia, according to a source who has seen a memo written by Comey.
The memo raises questions about whether Trump tried to interfere with a federal investigation at a time when investors were beginning to doubt that his administration would be able to get a divided US Congress to support its promised policy steps.
“Investors need to see if he can carry out all of his original ideas, compromise, and get organised,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
“There are still Japanese institutional investors who want to buy the dollar on dips, but for now, they're standing back to see what happens next, “ he added.
The dollar skidded 0.5 per cent to one-week lows against its perceived safe-haven Japanese counterpart and last stood at 112.56 yen.
“The political shenanigans in Washington concerning Trump appear to be denting appetite for the U.S. dollar at the moment, but it's run into technical selling as well,” said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.
“The move in FX looks to be exaggerated by the addition of the systematic selling of the US dollar by technical trading accounts,” she said.
US Treasury yields
US Treasury yields fell after data showing US homebuilding unexpectedly dropped last month, adding to a recent spate of mixed data that has raised doubts about the US monetary policy outlook. Separate data showed US manufacturing production recorded its biggest increase in more than three years in April.
The yield on benchmark 10-year notes fell to a two-week low of 2.291 per cent in early Asian trade, down from its US close on Tuesday of 2.327 percent. It last stood at 2.301 per cent.
Interest rate futures showed the market was still pricing in a nearly three in four chance that the Fed will implement a June hike, but that was down from over 80 per cent a week ago, according to the CME Group's FedWatch Tool.
Investors were pricing in slightly below an even chance for two or more rate increases in 2017, despite central bankers' stated view that they will hike two more times this year.
The euro added 0.1 per cent to $1.10965 after earlier touching $1.1098, its highest since November.
Against the resurgent Japanese currency, the euro tumbled 0.4 per cent to 124.88, as investors locked in gains following the European currency's move to a 13-month high of 125.815 on Tuesday.
Data on Tuesday showed the euro zone growing at 1.7 per Dollar pressured by US political turmoil, strong eurozone datacent year-on-year in the first quarter, in line with expectations.