NEW YORK (Reuters) - The dollar retreated across the board on Wednesday as U.S. Treasury yields eased from more than one-year highs, although most investors are convinced the greenback’s upward trend is intact.
The U.S. currency’s losses were most pronounced against the safe-haven yen and Swiss franc, with declines of more than 1 percent.
U.S. bond yields, meanwhile, retreated from the 13-month peak touched overnight as investors awaited further signs of whether the economy is gaining enough strength for the Federal Reserve to pull back on its monthly bond purchases.
“Dollar weakness is again being caused by the backing up in Treasury yields and the cutting of positions across the board,” said Steven Englander, global head of currency strategy at CitiFX in New York.
Recent positioning data showed forex speculators had increased long dollar positions to the highest since at least June 2008 in the week to May 21 and increased short yen positions, according to Reuters data. This allowed the potential for a reversal as investors take profits on those bets. <IMM/FX>
“The dynamics are likely to be that the dollar is stable or falling moderately on position-cutting because long dollars is the biggest FX position out there. But once asset markets stabilize, the dollar is likely to rebound sharply,” Englander said.
The dollar lost 1.3 percent against the yen to trade at 101.08 yen, having hit a session low of 100.71, according to Reuters data, not far from a two-week low of 100.68 yen set on Friday. Support lies around last week’s low of 100.68 yen.
Against the Swiss franc, the dollar slid 1.5 percent to 0.9619 franc.
The dollar has reversed some of the sharp gains it made in recent weeks after increased speculation the Federal Reserve could reduce its monetary stimulus. Some analysts said any pullback in the dollar should be limited given the U.S. economy is on a better footing than its major counterparts.
Against a basket of currencies, the dollar index .DXY eased 0.6 percent to 83.606, pulling away from a three-year high of 84.498 set on May 23.
Some traders also cited a large sell order that has forced many in the market to exit long-dollar positions.
On the charts, Walter Zimmerman, chief technical analyst at United-ICAP in New York, believes Wednesday’s dollar sell-off was just a pullback in a major upward trend.
“We are moving into levels on the dollar index not seen since 2010. So this a mammoth bottoming pattern that’s being carved out,” said Zimmerman.
“If the dollar index breaks the 86-level, that looks to me that it’s headed to 92 and that would be pretty huge, that would be the highest level seen in many, many years.”
The last time the dollar index hit 92 was in 2005, according to Reuters data.
The Australian dollar was up 0.3 percent to US$0.9646, recovering from a 19-month low of US$0.9526 hit earlier in the global session.
Meanwhile, the euro rose 0.7 percent to $1.2940, extending gains after stop-loss buy orders were triggered on the break above $1.2910, traders said. Further gains would see it target last week’s peak of $1.2998.
Adding to gains in the euro was a bigger-than-expected rise in German inflation, although the currency’s gains could be temporary as the data may not be enough to reduce the likelihood of further monetary easing by the European Central Bank.
The OECD called on Wednesday for the ECB to take more action to lift the euro zone out of recession.
Additional reporting by Wanfeng Zhou; Editing by James Dalgleish