US dollar pulls back from fresh cycle highs ahead of critical US events

• US dollar is on the back foot, retreating from fresh daily highs. 
• US yields slump after making fresh highs also before critical US events. 

As per bullish analysis, dating back to August of this year, US dollar embarking on a highly bullish weekly close, the price has indeed moved higher along the projected bullish path. US yields have led in a similar trajectory, as forecasted in August as well, here: US dollar holds no bars as it hunts down July highs.

The dollar index, which measures the greenback against a basket of other major currencies, touched 94.519 its highest since late September 2020. Yields on the US two-year Treasury note jumped to their highest in more than 18 months on Tuesday, as investors sold US debt.

The fears that that soaring energy prices would fuel inflation and add to pressure on the Fed to take action sooner than anticipated. However, the higher high was short-lived and the yield on the two-year fell into the close in New York. Today, yields are on the back foot which could be helping to explain the sluggish behaviour in the greenback on Wednesday so far. 

With that being said, traders are likely taking a respite ahead of critical data from the US, starting with US Consumer Price Index today. Retail Sales data is then expected on Friday to add further clues as to when the Fed might begin winding down its stimulus. Meanwhile, the minutes of the September FOMC meeting will also provide greater clarity on the Committee’s view of the risks.