The dollar continues to dance to the tune of the Treasuries.
In recent months, US government bond yields have skyrocketed amid expectations that the Fed's loose monetary policy and massive fiscal stimulus will accelerate US inflation.
Data released on Wednesday showed that price pressures in the country are increasing, but not as quickly as investors feared.
In February, consumer prices in the United States climbed 0.4% month-on-month, in line with expectations. At the same time, the base indicator added only 0.1%, while experts predicted an increase of 0.2%.
The previous day's auction of 10-year bonds generated sufficient demand, easing concerns about investors' ability to absorb the increase in government debt needed to finance the fight against the consequences of the pandemic.
As a result, Treasury yields pulled back, the Dow Jones jumped more than 400 points to renew its all-time high, and the greenback fell to a weekly low, sagging below 91.6 points.
"The CPI has been a useful reminder to market participants that US inflation is still fairly low," said strategists at the Commonwealth Bank of Australia.
"To achieve the inflation target of 2%, the Fed will need to work hard. Recently, financial markets have become ahead of events, believing that the Fed will have to start raising rates earlier," they added.
The dollar has found ground this month on expectations that the United States will be at the forefront of a global economic recovery in 2021.
The USD Index, which has lost about 12% since March 2020, has won back more than 2% thanks to the hopes of the stimulus plan proposed by US President Joe Biden and equal to almost 10% of the national GDP.
"Whether the greenback is able to continue its rally or resume the downward trend will depend on how the United States performs in comparison to its key trading partners - whether it surpasses them or remains on an equal footing with them," Westpac said.
On Wednesday, the House of Representatives passed the widely anticipated $1.9 trillion fiscal stimulus package.
According to Oxford Economics, the new package of measures will add 3% to the US GDP and help create 3-3.5 million jobs in the country.
US Treasury Secretary Janet Yellen has already called yesterday a "significant day" for the country's economy. In her opinion, full employment can be achieved as early as next year. At the same time, she does not expect an overheating of the economy due to large-scale state support, which could cause increased inflation and an increase in interest rates.
Fed Chairman Jerome Powell has repeatedly made it clear that zero rates will continue after inflation rises above 2%.
The next meeting of the Federal Reserve will take place next week.
In the meantime, the focus is on the ECB, which will have to decide on the interest rate on Thursday.
We will not only hear the speech of ECB President Christine Lagarde but also learn updated economic forecasts from the regulator.
Europe is still lagging behind the United States in terms of vaccination against COVID-19, quarantine measures in the eurozone are tougher, the single currency is still strong, and the ECB is more concerned about rising government bond yields than the Fed.
The latest macro statistics for the eurozone were mixed, and the region will be very lucky if it can avoid a slowdown in economic growth in the first quarter.
Meanwhile, the global economy is recovering, more people are being vaccinated every day, and the global outlook is very bright.
The main question now is whether the ECB can turn a blind eye to short-term uncertainty.
If the European regulator focuses on market volatility and increases the volume of bond buybacks, the EUR/USD pair will fall to new lows.
If ECB officials remain optimistic and abandon further easing of monetary policy, the main currency pair may return to the level of 1.2000.
"EUR / USD is extending short-term recovery after falling to 1.1831 (the level where the 200-day moving average passes). A rise above 1.1933-1.1947 will lead to a rise to 1.1991 (38.2% Fibonacci retracement of the decline since the end of February). The breakout of the last mark will clear the way for the bulls to 1.2039-1.2054," Credit Suisse experts say.
"Strong support for EUR/USD is located at 1.1882, and a break below 1.1852 will signal the end of the bounce and retest the 1.1831-1.1835 area. A close below it will confirm the bearish momentum and put 1.1800 and 1.1745 into play," they added.