The US dollar nursed modest losses on Friday after investors booked profits in an extended rally that has driven the greenback to successive multi-year peaks this week.

An unexpected fall in US retail sales gave the market an excuse to sell the dollar, which promptly retreated from a 12-year high against a basket of major currencies.

Dollar index

The dollar index last stood at 99.332, having slid 0.4 per cent on Thursday — its biggest one-day fall in a month. The index earlier rose as far as 100.060, a high not seen since mid-April 2003.

“The overnight session witnessed the long overdue consolidation in USD,’’ analysts at CitiFX wrote in a research note to clients.

“Our trading desk thinks it represents a generally healthy corrective move. Indeed, we have seen good USD demand on dips. Turnover is very high across the G10 space.’’

The dollar index, however, is still on track to end the week up more than 2 per cent, extending last week’s 2.5 per cent rally.

With no major market-moving economic data due on Friday, the dollar could continue to consolidate a little further, traders said.

Dollar vs other currencies

Against the yen, the dollar slipped to 121.34 yen, pulling away from a near eight-year high of 122.04.

It also lost ground against the euro, which popped up to $1.0613, from a 12-year trough of $1.0494. The common currency was still poised to drop more than 2 per cent this week.

Euro zone bond yields

The common currency was also given a bit of a reprieve by a bounce in some euro zone government bond yields, which hit record lows this week as the European Central Bank kicked off its €1 trillion bond- buying programme.

The German 10-year bond yield, for example, rebounded to 0.249 percent after sliding to an all-time low of 0.187 per cent overnight.

“Euro zone debt may look a little over-valued. They will of course remain well bid under ECB’s bond-buying scheme, but their gains have been too rapid. The euro may thus hold in range in the short-term, especially with dollar demand ebbing a little ahead of next week’s Federal Reserve meeting,’’ said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Fed policy meet

The Fed convenes on March 17-18 for a policy meeting and the market is keen to interpret the central bank’s monetary policy stance after expectations for a mid-year interest rate hike increased in light of last week's robust employment data.

Greece debt talks

In the meantime, concerns about Greece continued to bubble in the background. The cash-strapped country has embarked on technical talks with its international creditors to agree reforms and unlock further funding, but there is growing frustration with Athens.

The greenback also eased against commodity currencies such as the Australian dollar, which climbed to around 77 US cents from a six-year low of $0.7561 set on Wednesday.

Sterling, however, made no headway against the broadly softer dollar after Bank of England Governor Mark Carney signalled he was in no rush to raise interest rates, dashing some expectations of a hike in early 2016.

The pound plumbed a 20-month low of $1.4850 and was last trading at $1.4871.

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