The dollar settled near a two-week high versus its rivals on Wednesday as US President Donald Trump's State of the Union speech failed to surprise currency traders with markets more focused on the near-term outlook for monetary policy.

Both the US Federal Reserve and the European Central Bank have signalled a cautious monetary outlook in recent days with the Fed's pause proving a relatively bigger surprise for markets.

However, weak data has dogged eurozone policymakers with some officials reluctant to alter guidance on interest rates as a move could tie the hands of the central bank's next president months before an appointment is made, according to sources.

As a result, the euro has failed to shake itself out of a broad $1.13-1.15 range it has traded within for the last three months. “Markets are becoming increasingly sensitive to the outlook for monetary policy and any shifts or changes in thinking can trigger large moves,” said Thu Lan Nguyen, a forex strategist at Commerzbank based in Frankfurt.

That shift in policy thinking was evident in the slump of the Australian dollar after its central bank opened the door to a possible rate cut in a remarkable shift from its long-standing tightening bias.

The policy shift stunned investors as only just the previous day the Reserve Bank of Australia steered clear of an easing signal when holding its official cash rate at a record low 1.50 per cent for the 30th straight month. The Australian dollar plunged 1.5 per cent to $0.7133, set for its biggest daily drop in a year, and market analysts rushed to change their interest rate forecasts.

In broader currency markets, the dollar consolidated at a two-week high against rivals with investors focused on incoming US data. In an annual speech on Tuesday outlining his priorities for the coming year, Trump said illegal immigration was a national crisis and reiterated his vow to build a border wall.

The pound remained on the back foot following a slump overnight. The currency was a shade lower at $1.2930 after brushing $1.2923, its lowest since January 22. Sterling had lost nearly 0.7 per cent on Tuesday on a weak Purchasing Managers' Index data and uncertainty about Brexit talks.

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