Investing.com - The dollar slid lower against a currency basket on Thursday, as investors took a breather after this week’s rally to four-and-a-half month highs as interest rate differentials continued to drive strength in the U.S. currency.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.28% to 92.69 by 06:38 AM ET (10:38 AM GMT), pulling away from Wednesday’s four-and-a-half month high of 93.26.
The dollar has been boosted by rising U.S. yields and the prospect of a faster pace of rate hikes by the Federal Reserve this year. Expectations of higher interest rates make the dollar more attractive to investors seeking yield.
The yield on 10-year U.S. Treasury notes last stood at 2.96% after rising above the key 3% level on Wednesday, moving closer to its 2018 peak of 3.035%.
Investors were looking ahead to figures on U.S. inflation later in the day which was expected to show a pickup in underlying inflation. Rising inflation would be a catalyst to push the Fed toward raising interest rates at a faster pace than currently expected.
The dollar pared early gains against the yen, with USD/JPY last at 109.64, down slightly from the three month high of 110.03 reached on May 2.
The euro pushed higher, with EUR/USD climbing 0.32% to 1.1888, after falling to a four-month low of 1.1821 in the previous session.
The pound also gained ground, with GBP/USD rising 0.45% to 1.3608, recovering from Tuesday’s four month lows of 1.3483.
Sterling remained on the defensive ahead of a Bank of England meeting later in the day, where no change to interest rates was expected.
A recent series of weak economic reports and renewed concerns over Brexit have prompted investors to slash expectations for a rate hike.
The New Zealand dollar was lower, with NZD/USD losing 0.43% to trade at 0.7486 after falling to a five month low of 0.6903 overnight. The kiwi weakened after the country’s central bank left rates on hold overnight and said the next move in rates could just as easily be a cut as a hike.
Meanwhile, the Australian dollar pushed higher, with AUD/USD rising 0.39% to 0.7488.