Dollar retreats from highs as risk appetite improves; euro edges up after PMIs

investing.com:

Investing.com — The U.S. dollar retreated from six-week highs in early European trade Wednesday amid rising risk appetite, while the euro struggled to push higher ahead of this week’s European Central Bank policy meeting.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 103.107, not far below the highest level since early December at 103.82, reached in the previous session.

Positive corporate earnings, from streaming giant Netflix (NASDAQ:NFLX) in particular, have resulted in a boost to risk appetite Wednesday, causing the dollar to edge lower.

However, the greenback remained close to recent highs as strong inflation and labor market data saw traders largely scale back expectations for early interest rate cuts by the Fed.

Focus now turns to fourth-quarter gross domestic product data, due on Thursday, and Friday’s PCE price index data — the Fed’s preferred inflation gauge. Any signs of resilience in economic growth and inflation give the Fed more impetus to keep rates higher for longer.

“We don’t have a strong bearish view on the dollar in the short-term, but yesterday’s moves did appear overdone in an environment where Fed funds futures still price in 130/140bp of cuts this year,” said analysts at ING, in a note.

The Fed is widely expected to maintain rates at 23-year highs next week, but traders are still looking for the central bank to eventually begin trimming rates this year.

In Europe, EUR/USD traded 0.1% higher at 1.0865, with the euro struggling to benefit from the positive risk sentiment after the release of data showing that Germany's economic downturn worsened this month with both manufacturing and services activity