The dollar fell on Thursday as the U.S. Treasury yields paused, and commodity-linked currencies such as the Canadian and Australian dollars gained amid rising commodity prices and optimism about global economic growth.
After suffering through their worst days in a month on Tuesday, the euro and sterling gained ground when the dollar was lifted by a jump in U.S. Treasury yields.
The European single currency was last at $1.1368, up 0.2% on the day. The pound was 0.2% higher at $1.3636 and the yen was unchanged at 114.33 per dollar.
The dollar index, which measures the dollar against six major peers, was 0.2% lower on the session, at 95.428.
The dollar has rallied in recent sessions, but it has not performed as well as expected given the dramatic rise in expectations for the U.S. Federal Reserve to hike interest rates early in March to combat soaring inflation.
The two-year high of 1.902% reached early on Wednesday was reached by the Benchmark 10 year note yields at 1.8469%.
The gains come as traders prepare for the United States to tighten monetary policy at a faster pace than previously thought. Fed funds futures have a four-in-all rate hike for the year 2022 and a hike in March.
The Aussie and the Loonie were supported by a combination of higher commodity prices and expectations for tighter policy.
The Aussie was up 0.3%, extending advances from the previous day, and the Canadian dollar was heading back towards the 10 week high it touched on Wednesday, with one U.S. dollar worth C $1.2489.
The Aussie was also helped by a strong Australian labour market reading overnight, according to analysts.
The latest Australian employment report showed further evidence that labour market conditions continue to tighten and reinforced the expectation that the RBA Reserve Bank of Australia will end the quantitative easing programme at their next policy meeting on 1 February, according to MUFG analyst Lee Hardman.
Hardman noted that the Canadian dollar has been the best performing G 10 currency in 2022, attributing that to a rebound in oil prices which have hit seven-year highs and speculation that the Bank of Canada will hike rates.
The Norwegian crown, a currency linked to the price of oil, performed well, rising by 0.2% against the euro and the dollar.
The overnight commodity prices were the big driver of commodity prices but you still have the undertone that the COVID-19 variant Omicron is not going to have a negative impact on the global outlook, said Kim Mundy, senior economist and currency strategist at Commonwealth Bank of Australia.