The dollar stood close to a more than one-month low against a basket of currencies on Thursday, amid growing hopes that the US Federal Reserve will shift to less aggressive interest rate hikes to temper recession risks.
The euro EUR=EBS peaked at USD 1.00935 ahead of an expected ECB rate hike later in the session, while sterling GBP=D3 was at USD 1.1645 in early Asia trade, both their highest since 13 September though they later pared gains and fell about 0.1 per cent each.
Meanwhile, the yen gained some footing ahead of Friday's policy decision by the Bank of Japan, rising to 145.11 per dollar, its highest since 21 October.
Fundamentally, there are factors that are still favouring the US dollar, rate differentials, the fact that the Fed still has more work to do.Rodrigo Catril, senior currency strategist at National Australia Bank.
It was last up 0.72 per cent at 145.35 per dollar, perhaps buoyed by some speculation of a policy tweak by the BOJ, though most analysts expect it will keep ultra-low interest rates steady.
"Fundamentally, there are factors that are still favouring the US dollar, rate differentials, the fact that the Fed still has more work to do," said Rodrigo Catril, senior currency strategist at National Australia Bank.
"But certainly near term, given how much was priced (in), we've seen a bit of retracement in the dollar ... Our sense is that it's a bit of a consolidation of the recent moves rather than extension of further dollar declines."
Looking ahead to next week's FOMC meeting, markets are still expecting another 75 basis point (bps) hike, although sentiment is building that the Fed will opt for a smaller increase in December.
Housing data released this week, which showed that US single-family home prices sank in August and sales of new US single-family homes dropped in September, provided more evidence that the Fed's aggressive tightening cycle is already slowing the economy.
Overnight, the Bank of Canada announced a smaller-than-expected interest rate hike and said it was getting closer to the end of its historic tightening campaign.
The Canadian dollar CAD=D3 last traded at 1.3547 per US dollar.
Against a basket of currencies, the U.S. dollar index =USD was up 0.05 per cent at 109.61, after having slid to 109.54 earlier in the session, its lowest level in over a month.
The main focus on Thursday will be a rate decision by the European Central Bank, with markets expecting it to deliver a 75 bps hike.
"What the ECB says will be important," said National Australia Bank's Catril.
"The question is whether they want to ... show that full commitment to the inflation mandate, or whether they show weakness or concerns in terms of what looks to be a challenging growth outlook."
Meanwhile, the Aussie AUD=D3 gained 0.18 per cent to USD 0.6507, as a red-hot inflation print stoked pressure for more aggressive rate hikes by the Reserve Bank of Australia.
Data released on Wednesday showed that Australian inflation raced to a 32-year high last quarter.
Westpac said on Thursday it expected the RBA to raise its cash rate by 50 bps in November, and now expects the policy rate to peak at 3.85 per cent by March, having earlier expected it reach 3.6 per cent.
The kiwi NZD=D3 rose to USD 0.5870, its highest in more than a month, and was last up 0.48 per cent at USD 0.5859.