The dollar gave up much of its early gains after ADP and ISM services reports disappointed expectations nL2N2L02B7, but rising U.S. yields helped to prevent a full-scale retreat in the U.S. currency.
EUR/USD only bounced from 1.2043 to 1.2080, with Treasury yields stubbornly clinging to sizeable gains, underpinned by rapidly expanding U.S. COVID-19 vaccinations and supplies nL3N2L035W versus heavily lagging efforts in the EU and Japan.
The Fed and other policy-makers have focused on the pandemic trajectory as the most important variable for economic recovery, though there are concerns that restrictions might be lifted too quickly nL2N2L02I3nW1N2KA01O.
The market showed little reaction to the Fed's beige book report nL2N2L12UO showing that the U.S. economic recovery continued at a modest pace over the first weeks of this year.
EUR/USD remains near the middle of February's 1.1952-2435 range on EBS, though looking heavy nL2N2L11SU in face of speculation about whether the ECB might address rising yields nS0N2J300OnL5N2L159S through its pandemic emergency purchase programme nL5N2L12G6.
The market will scrutinize Fed Chair Jerome Powell's comments Thursday.
He and other policy-makers have foreseen a strong recovery this year but no need for tightening because long-term inflation and employment goals remain far off.
The dollar index will need to close above its pivotal 100-day moving average and February's recovery high at 91.25/60 to put a period on the pandemic downtrend nL2N2L11UB.
USD/JPY hit a 7-month high right at the 50% Fibo of the entire pandemic plunge at 107.16, perhaps marking a near-term, overbought recovery high and start of an overdue correction.
Without a close above 107.16, the 106.22 Feb.
17 swing high by a cleared 50% Fibo would offer decent support nL2N2L125W for a correction.
Friday's CFTC positioning data could be illuminating after USD/JPY ran well above where most of the spec shorts were accumulated in late 2020 and early January.
Sterling struggled to get much above Monday's 1.3999 high, despite UK Finance minister Rishi Sunak's "whatever it takes" budget, as markets also looked ahead at the promise of a corporate tax hike in 2023 nL2N2L11OC.
This comes amid fresh friction between Britain and the EU regarding the Northern Ireland border nL5N2L13ZA.
Setbacks in stocks amid rebounding Treasury yields weakened most high-beta currencies, including the Mexican peso, despite more than 3% gains in WTI on expectations OPEC+ would refrain from reversing production cuts at Thursday's meeting.
The severe weather that impacted the ADP and ISM data also played a huge role in weekly EIA petroleum inventories data nL2N2L104K.
jobless claims and Powell's speech top Thursday's event risks, though Friday's payrolls report will set the tone for next week, along with details on the relief bill being adjusted in the Senate before going back to the House nL2N2L119S.
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