The dollar stepped back from an 11-year peak against a basket of currencies after soft spending data and disappointing earnings cast doubt on underlying optimism about the US economy, but it found some support against Asian currencies.

Investors took profits from recent gains in the US currency ahead of a Federal Reserve policy announcement later on Wednesday, which some think could show a more dovish bias due to the recent plunge in oil prices.

“I would say the dollar selling we’ve seen so far is just position adjustments ahead of the major (Fed) event,’’ said Bart Wakabayashi, head of forex at State Street Bank.

“But I am a bit nervous that the dollar may have a further leg to go down if the Fed says something negative (about the US economy), given that the market is still very long in the dollar on the whole,’’ he added.

Dollar vs other currencies

The dollar index posted its biggest fall since early October on Tuesday to 94.10, slipping further from the 11-year high of 95.481 hit on Friday.

It last stood at 94.30 as the greenback gained a slight boost in Asia after surprise monetary easing by Singapore lifted the US currency against the Singapore dollar and other Asian currencies.

Against the yen, the US currency fetched 118.15 yen, about 0.3 per cent above late US levels but still off last week’s high of 118.80.

The euro traded at $1.1340, having risen to $1.1423 on Tuesday, extending its rebound from an 11-year low of $1.1098 hit on Monday.

US economic recovery

Betting on the dollar has been a winning trade since the second half of last year, as investors expected the Fed to start raising rates this year on the back of a solid US economic recovery.

But the currency’s big gains — almost 18 per cent in the dollar index since June — have raised concern about profits at US firms.

Corporate earnings

Earnings from major US firms have disappointed investors, with multinationals from DuPont and Caterpillar to Microsoft Corp complaining that the strong dollar was hurting profits.

Data on Tuesday showed US non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell unexpectedly for a fourth straight month in December.

It marked the longest downward stretch since 2012, stoking worries that slowing global growth and cheap oil prices were curbing business spending in the United States, one of the brightest spots in the global economy.

“US economic indicators are losing a bit of momentum lately, whether it is caused by a strong dollar or not,’’ said a trader at a major Japanese bank.

While other US data such as consumer spending and home sales were more robust, traders are getting worried the Fed could turn even more cautious in its guidance on future rate rises, given the plunge in oil prices is cooling any inflationary pressure.

Elsewhere, the Australian dollar jumped 0.7 per cent to $0.7988 after higher-than-expected core inflation led investors to sharply scale back expectations of an interest rate cut next week.

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