By Stanley White

TOKYO (Reuters) – The dollar nursed losses against most currencies on Thursday after benign data on U.S. consumer price data and a decline in Treasury yields led some investors to trim bets on a rapid acceleration in inflation.

The euro was in focus ahead of a European Central Bank meeting later on Thursday where policymakers are expected to send a message that they will prevent bond yields from rising further and harming the bloc’s economic outlook.

Sentiment for the dollar remains fairly positive as the U.S. economy is recovering from the coronavirus pandemic and President Joe Biden’s $1.9 trillion stimulus bill has won final approval in Congress, so any further declines in the dollar are likely temporary.

“The reflation trade looks set to continue,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“The dollar is the dominant theme in the currency market, and this is just a temporary pause in its uptrend.”

Against the euro, the dollar was quoted at $1.1928, nursing a 0.2% loss from the previous session.

The British pound bought $1.3933 after rising 0.3% on Wednesday.

The dollar traded at 108.37 yen, extending a pullback from a nine-month high reached on Tuesday.

Against the safe-harbour Swiss franc, the dollar bought 0.9297.

U.S. core consumer prices rose 1.3% year-on-year in February, a slight slowdown from a 1.4% annual increase in the previous month, data showed on Wednesday.

The dollar and U.S. Treasury yields have been rising steadily due to expectations that the Federal Reserve’s loose monetary policy and fiscal stimulus will stoke inflation, but the subdued price data took some momentum away from the greenback.

Traders are also closely watching an auction of 30-year Treasuries later on Thursday, which will be an important test of demand for new debt.

An auction of 10-year Treasuries on Wednesday was met with sufficient demand, easing concerns about investors’ ability to absorb an increase in debt needed to finance the response to the coronavirus.

If future auctions also draw reasonably strong demand this would be another positive factor for the dollar, according to IG Securities’ Ishikawa.

The dollar index against a basket of six major currencies was little changed at 91.771.

Investors have been testing the ECB’s resolve to rein in rising bond yields. So far the euro zone’s central bank has refrained from large-scale market intervention, and policymakers are divided on whether one is warranted ahead of their meeting on Thursday.

Policymakers have also expressed concern about strength in the euro, which is another reason for traders to remain cautious before the ECB’s meeting.

Elsewhere, the Australian and New Zealand dollars steadied against the greenback, but sentiment for the antipodean currencies remains strong due rising commodity prices and expectations for an acceleration in global trade.

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