US dollar flexes its muscles once again. Euro hits five-week low

<p>The US dollar is at the best levels of the day as the euro and pound fall to the wayside.</p><p>The bond market is offering the dollar some support with 2-year yields up 2.6 bps and 30s up 5.1 bps in a moderate bear steepener. Further pressure on yields could come from oil, which is now positive on the day at $74.68 from a low of $73.41.</p><p>The euro was already down 30 pips on the day to 1.0850 before the release of January consumer confidence but fell further after the report showed a decline to -16.1 from -15.0. The impact of higher rates is biting the eurozone economy, though there are still some dividends from lower energy prices.</p><p>The latest leg lower in EUR/USD has sent the pair to its lowest since mid-December.</p><p>Meanwhile, cable still has plenty of room before the lows of the year but it's sagging today.</p><p>The US dollar is being lifted by a a shift in the market regarding the likelihood of a March rate cut. At the turn of the year it was priced as a certainty but that's now fallen to a 42% probability. It will take a turn lower in inflation or jobs to get there but it underscores how sensitive the US dollar will be to coming economic data.</p><p>Tomorrow we get the US services and manufacturing PMIs from S&amp;P Global, then on Thursday we get the PCE report. For more, see <a href="https://www.forexlive.com/EconomicCalendar" target="_blank" rel="follow">the economic calendar</a>.</p><p>Another positive driver for the US dollar this year has been USD/JPY. The BOJ met today and left interest rates unchanged, as expected. However Ueda offered hints of a coming exit from negative rates as he said that hikes would still leave them with stimulative policy. That initially caused a drop in USD/JPY but it was quickly picked up. That's been the theme in almost every trading day for USD/JPY this year, with that pair now up 800 pips year to date.</p>

This article was written by Adam Button at www.forexlive.com.