The dollar pulled back on Thursday after rising to one-month highs in the wake of upbeat US economic data, with demand for the greenback cooling as Treasury yields came off their peaks.

Better-than-expected US inflation and retail sales data had backed the expectations of an early rate hike by the Federal Reserve, sending the dollar index to 101.76 on Wednesday, a peak unseen since January 12. It has since retreated to 100.92 in the Asian session on Thursday.

The dollar also came off from a 2-1/2-week high of 114.95 marked on Wednesday against the yen, touching a low of 113.73. It was last down 0.3 per cent at 113.84 yen.

“The dollar is struggling as US Treasury yields retreated from highs,” said Junya Tanase, chief currency strategist at JPMorgan Chase Bank in Tokyo.

US benchmark 10-year Treasury note yields slipped to 2.484 per cent on Thursday, after climbing to a three-week high of 2.524 per cent on Wednesday following the upbeat US data.

US economic data

Data on Wednesday showed US consumer prices recorded their biggest gain in nearly four years, jumping 0.6 per cent in January. Retail sales also outpaced expectations, increasing 0.4 per cent last month compared to the analysts' poll of 0.1 per cent.

But some analysts also noted that the data may not be as strong as it appears, while industrial output and a gauge on home builder sentiment took unexpected spills.

“Retail sales seemed to have been boosted by higher prices rather than an increase in the real consumption,” said Shin Kadota, senior forex strategist at Barclays.

“Investors also took profit as the dollar was trading high this week,” added Kadota.

Up until Tuesday, the dollar index had enjoyed a 10-session winning streak.

Fed rate hike

Fed Chair Janet Yellen offered no additional insight on the timing of the central bank's next rate hike in her second day of economic testimony before Congress on Wednesday.

On Tuesday, Yellen had hinted more rate hikes were on the way as the jobs market has improved and inflation has shown signs of nearing the Fed's two per cent goal.

Markets will get another chance to check the US economic pulse from another batch of data, including housing starts, building permits and the Business Outlook Survey by Reserve Bank of Philadelphia.

The euro edged up 0.15 per cent at $1.0614, recovering from a five-week trough of $1.052 touched on Wednesday.

Elsewhere, the Australian dollar hovered near a three-month high following a slightly better-than-expected reading in the country's January employment data.

The Australian dollar last traded at $0.7709 after touching $0.7732, its highest since November 10.

Sterling last stood at $1.2460, edging up from a one-week trough of $1.2384 touched on Wednesday, knocked by slowing wage growth in the fourth quarter - bad news for British consumers facing a surge in inflation in the months ahead.

Related Topics