By Chuck Mikolajczak
NEW YORK (Reuters) -The U.S. dollar rose on Wednesday to move further from recent 11-week lows, as U.S. Treasury yields stabilized as investors gauge the economic environment and tariffs outlook.
The greenback stumbled on Tuesday as economic data showed a sharp drop in consumer confidence, the latest in a string of data points that have prompted concerns about the strength of the U.S. economy and persistent inflation, and caused U.S. Treasury yields to tumble.
The benchmark 10-year U.S. Treasury yield plunged nearly 10 basis points (bps) on Tuesday and touched a fresh 2-1/2 month low of 4.281% on Wednesday before recovering and was last up 1 basis point to 4.308%.
“We’ve had a pretty good sell-off since January, a lot of that’s been fueled by the adjustment lower in U.S. real rates, which was largely fueled by the underperforming data we’ve been seeing, including yesterday,” said Brad Bechtel, global head of FX at Jefferies in New York.
“We’re at a stage now where we’re probably just going to chop around for a bit until we hear more about what’s actually happening with tariffs.”
The dollar index, which measures the greenback against a basket of currencies, rose 0.35% to 106.61, with the euro down 0.31% at $1.048.
The greenback had fallen nearly 4% from a more than two-year high hit in January as worries have emerged about U.S. economic growth as well as inflation, as tariff deadlines by Trump on Canada and Mexico are set for next week. Investors are also bracing for the labor market impact from actions taken by Elon Musk’s Department of Government Efficiency.
Even with the recent declines, the dollar has risen in three of the past four sessions and “the market is still respecting the fact that there’s an underlying bid tone to the dollar overall, and that’s kind of why we’re holding in around 106 for now,” said Bechtel.
Markets are currently pricing in 53 bps of rate cuts from the U.S. Federal Reserve by the end of the year, with expectations for a cut of at least 25 bps not topping 50% until the June meeting.
Richmond Federal Reserve President Tom Barkin said on Tuesday he will follow a wait-and-see approach regarding central bank interest rate policy until it is clear inflation is returning to the Fed’s 2% target given the current uncertainty surrounding the economy.
Federal Reserve Bank of Atlanta President Raphael Bostic is scheduled to speak later on Wednesday.
The U.S. Commerce Department said on Wednesday that new home sales plunged 10.5% to a seasonally adjusted annual rate of 657,000 units last month, short of the 680,000 estimate of economists pilled by Reuters, hurt by persistently high mortgage rates and unusually cold weather in some parts of the country.
Investors were also eyeing any peace talks over Ukraine, which could affect the euro area economy and the single currency.
Ukraine said on Wednesday it had reached a “preliminary” deal to hand revenue from some of its mineral resources to the United States, before an expected trip to Washington by President Volodymyr Zelenskiy on Friday.
Against the Japanese yen, the dollar strengthened 0.56% to 149.86 after falling to 148.56 on Tuesday, its lowest since October 11. Sterling edged down 0.01% to $1.266.
The Canadian dollar weakened 0.17% versus the greenback to C$1.43 while the Mexican peso < MXN=> weakened 0.24% versus the dollar at 20.529 with possible tariffs from the U.S. scheduled to take effect next week.
(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski)
