Market participants chose to take profits from the US dollar, as there are still doubts regarding the Fed's interest rate outlook.

The US Dollar corrected across major pairs on Wednesday's trading (7/February). The US Dollar Index (DXY) then retreated from the 104.50s to 104.00s range. Analysts attributed the pullback to profit-taking and uncertainty over the Fed's interest rate outlook.


The US dollar rallied strongly on Friday and Monday as the prospect of a Fed rate cut receded. However, market participants remain hesitant to place longer-term positions in the US dollar.

US Treasury yields gained some respite on Wednesday after falling from this week's highs on solid demand at a sale of new three-year notes, removing some support for the dollar.

"Despite the ruling out of March rate cut hopes, the market is still showing some reluctance to go all in on the long US dollar trade given the high conviction around rate cuts later in the year," said Jane Foley, head of FX strategy at Rabobank.

Market participants will highlight the scheduled publication of US inflation data on Tuesday next week. Public communications of Fed officials may also affect market sentiment.

Yesterday, Loretta Mester and Neel Kashkari expressed views similar to Fed Chairman Jerome Powell's. They emphasized that it still takes time to determine the right time to cut interest rates. Several other officials, including Adriana Kugler, Michelle Bowman, Thomas Barkin, and Susan Collins, will take the stage today.

"The events of the last few days (have) seen markets try and absorb the fact that rate cuts might have to wait until much later in the year, and what any delay means for asset prices and valuations," CMC Markets chief market strategist Michael Hewson said. "While Powell's candour in ruling out a rate cut in March caught markets by surprise this week also offers an opportunity to see if other members of the FOMC share his mindset."