Investing.com - The U.S. dollar steadied near two-week highs in early European trade Wednesday ahead of the release of the minutes of the Federal Reserve’s December meeting.
At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 101.959, after surging just under 1% on Tuesday, which marked its best daily performance since March 2023.
Dollar gains on risk aversion
The dollar has made something of a comeback at the start of the new year, helped by a jump in U.S. Treasury yields, with the benchmark 10-year yield hitting an over two-week high in the previous session.
A bout of risk aversion saw the S&P 500 and Nasdaq Composite close their first trading session of 2024 lower, as investors fretted that the minutes of the Fed’s December meeting, due later Wednesday, may not be as dovish as had been previously expected.
“Markets are unwinding some dovish bets, and questioning stretched equity valuations, ultimately favoring defensive bets in FX,” said analysts at ING, in a note.
Euro bounces after sharp loss
In Europe, EUR/USD traded 0.1% higher at 1.0953, with the euro bouncing after having lost 0.95% on Tuesday, its largest daily decline since July last year.
German unemployment data for December came in slightly better than expected, but this has done little to dilute the feeling generated by Tuesday’s weak eurozone manufacturing PMI release, which pointed to an economy in recession.
“Dwindling risk sentiment definitely puts EUR/USD at risk of reconnecting with its depressed short-term rate differential, especially considering domestic economic news in the eurozone has remained rather grim,” ING said.
“We think EUR/USD continues to face downside risks, and a return above 1.10 appears less likely than a decline to the 1.08 region.”
GBP/USD rose 0.2% to 1.2643, with sterling rebounding having slumped 0.9% in the previous session, its sharpest daily fall in nearly three months.
Yen falls sharply in thin volumes
Elsewhere, USD/JPY traded 0.5% higher to 142.64, with the yen continuing to fall after dropping nearly 0.8% in the previous session. That said, these moves have occurred in thin volumes with Japanese markets shut for a week-long holiday.
USD/CNY edged higher to 7.1448, with further losses limited by a stronger-than-expected midpoint fix from the People’s Bank of China after disappointing official purchasing managers index data earlier in the week.