The dollar stalled after two days of strong gains on Friday, with nerves around a speech by Federal Reserve chief Janet Yellen due later in the day adding to factors that have held back a broader rally this year.
A poll showing centrist candidate Emmanuel Macron moving ahead of far-right rival Marine Le Pen in first round voting intentions also further eased nerves around April and May’s French presidential elections, prodding the euro higher.
The dollar is up around 1 percent this week, its fourth straight weekly gain on the trot, but a sour January means it is still well below highs hit on the back of optimism about the shape of Donald Trump’s presidency in December.
This week’s driver has been a swing in market expectations towards a rise in Federal Reserve interest rates on March 15.
Money markets have gone from giving that a less than 20 percent probability two weeks ago to around 80 percent on Friday – yet the dollar is still short of even last month’s highs against the euro and yen.
“The developments are clearly supportive for the US dollar, but it has strengthened only modestly so far,” said Derek Halpenny, head of global market research with Japan’s MUFG in a report listing nine reasons why the greenback was not rising faster.
“One key factor we believe is the fact that the euro is sitting around key technical support levels between $1.0400 and $1.0500 with a number of key events risks on the immediate horizon.”
Speeches from Fed Chair Janet Yellen and Vice Chair Stanley Fischer on Friday are now widely expected to be the final piece of the puzzle, along with next week’s non-farm payrolls. In that time, the market also has next Thursday’s European Central Bank meeting to contend with.
Halpenny and others also list nerves ranging from the lack of a substantial rise in longer-term U.S. Treasury yields to worries that Trump will not deliver on promised stimulus and tax reform as holding the dollar back.
The greenback fell a third of a percent against the basket of currencies used to measure its broader strength in morning trade in Europe.
It fell by more than half a percent against the euro, to $1.0564, after the new poll and the withdrawal of support of one party for another Macron rival, Francois Fillon.
The Australian and New Zealand dollars have been among the biggest losers against their U.S. counterpart, and they were both lower still on Friday, underperforming other major pairs.
That pointed to some underlying concern both over what more aggressive rises in U.S. interest rates will do to global demand, finances and the Chinese yuan.
“People were not expecting the Fed to move in March, so last month they were putting on more (interest rate) carry trades in these currencies,” said Bank of Montreal head of European FX strategy Stephen Gallo. “That is clearly coming off.”
The Aussie was down 0.1 percent on the day at $0.7564 , having touched lows of $0.7543, its weakest since Jan. 31. A more than 1 percent fall for the week is its worst performance since mid-December. The kiwi dollar was also down half a percent at $0.7026.
After poor Australian trade data on Thursday, some dealers pointed to a 5.5 point fall in the AIG performance of services index to below the 50-point line that points to a contraction.
“The Australian Dollar had been a clear outperformer in 2017 into this week, but could face more headwinds going forward if the Fed actually follows through,” analysts from London-based currencies exchange LMAX said in a morning note.