The dollar fell on Wednesday, retreating from a near three-month peak against the euro reached a day earlier, with falling US bond yields adding to the pressure.
Analysts pointed to technical factors for the US dollar's decline, following a two-day surge of 1.4% against the euro after stronger-than-expected US jobs data, as well as more hawkish rhetoric from Federal Reserve Chairman Jerome Powell, dashed expectations for an early interest rate cut.
US boss yields got some help on Wednesday after falling from this week's peak following strong demand on new three-year bond sales, removing some support for the US dollar.
The US dollar fell 0.16% to $1.0772 per euro, after slipping 0.1% on Tuesday, having previously touched its strongest level since Nov. 14. at $1.0722.
The US dollar index, which measures the US dollar against six major currencies, including the euro, slipped 0.1% to 104.04, following Tuesday's 0.29% decline. The index reached its highest level since Nov. 14. at 104.60 on Monday.
"The rebound in US bond yields yesterday allowed for some profit-taking in long-term US dollar positions," said Jane Foley, head of FX strategy at Rabobank.
"Even if the hope of a rate cut in March is ruled out, the market still shows a reluctance to take full risk in the long-term US dollar trading a string of high confidence about an interest rate cut at the end of the year".
Traders now rate a 21.5% chance of a rate cut in March, based on CME Group's FedWatch tool, compared with a 68.1% chance at the start of the year.
A sharper-than-expected decline in industrial output in the euro zone's biggest economy did not affect the euro as "Germany's industrial woes are now a common narrative", said Chris Turner, Global Head of Markets at ING.
Sterling strengthened 0.27% against the US dollar to $1.2633 after higher house prices in Britain supported bets that the Bank of England (BoE) is unlikely to cut interest rates anytime soon.
