Investing.com – The U.S. dollar held near two-week highs in early European trade on Wednesday…

At 14:00 Riyadh time, the dollar index, which tracks the US currency, was up less than 1% on Tuesday at 102.072, up 0.18% at 102.072, marking its best daily performance since March 2023.

Dollar rises amid risk aversion

The dollar made a kind of return at the start of the new year, supported by a rise in US yields, with the benchmark 10-year yield hitting its highest level in more than two weeks in the previous session.

The Federal Reserve's December meeting, scheduled for late Wednesday, sent signs of a bout of risk aversion and the first trading session of 2024 lower as investors expressed concern that the Federal Reserve's December meeting was as dire as previously expected.

“Markets are unwinding some cautious challenges, questioning extended equity valuations and ultimately supporting defensive challenges in FX,” analysts at ING said in a note.

Euro is recovering after heavy losses

It traded 0.1% higher at 1.0953 in Europe, rebounding after the euro lost 0.95% on Tuesday, its biggest daily decline since July last year.

Data for December came in slightly better than expected, but did not dampen sentiment as a result of the release of a weak Eurozone manufacturing PMI on Tuesday that pointed to an economy in recession.

“Decreasing risk sentiment coupled with low short-term interest rate differentials certainly puts EUR/USD at risk, especially as domestic economic news remains bleak in the Eurozone,” ING analysts said.

“We believe EUR/USD still faces downside risks, and a return above the 1.10 area looks less likely than a drop to the 1.08 area.”

It rose 0.2% to 1.2643, with sterling rebounding after falling 0.9% in the previous session, its biggest daily decline in almost three months.

Yen falls sharply with minimal trading volume

Elsewhere, the yen traded 0.5% higher at 142.64, continuing its slide after falling nearly 0.8% in the previous session. However, with Japanese markets closed for a week-long holiday, these moves were small.

{{2111|USD}} rose to 7.1448, further losses pared by a stronger-than-expected midpoint fix from the People's Bank of China, following disappointing official PMI data earlier in the week.
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