The dollar continued to weaken against its main competitors last Friday, despite the rise in the yield on 10-year US government bonds to annual highs.
If earlier such dynamics of Treasuries caused the dollar to strengthen, now we get a slightly different picture.
Perhaps the fact is that the greenback is becoming more cyclical, as we have seen recently. Therefore, the correlation between assets has decreased.
At the same time, talk is louder and louder that a sharp jump in Treasury yields may provoke a fall in American stocks, which can pull down all world stock indices.
An important line here is the 1.5% yield level, which served as a support last year that led to a big sell-off in the stock markets.
In case of flight from risks, investors can rush back to the USD.
There are concerns that rising inflation in the United States will outpace the national economic recovery. It is assumed that this will force the Federal Reserve to start tightening monetary policy much earlier.
However, US Treasury Secretary Janet Yellen has already hastened to reassure investors, noting that the Fed has the necessary tools to eliminate the inflationary risk.
Next week, Fed Governor Jerome Powell will address the US Congress with a semi-annual report on the state of the national economy and monetary policy.
Earlier, he made it clear that an increase in interest rates is not on the horizon and it is too early to talk about reducing asset purchases. At the same time, Powell is optimistic about the prospects for a recovery in the US economy and expects stronger growth in the second half of the year.
If the Fed chairman remains positive, combined with the central bank's commitment to ultra-loose monetary policy, this will be good news for stocks and bad news for the dollar.
Investors also continue to watch the fate of the $1.9 trillion fiscal stimulus package in the United States.
The main question is whether US President Joe Biden will be able to make progress on the issue of the aid program. Negotiations with the Democratic Party are continuing, and one of the contentious issues is raising the minimum wage. A congressional vote on the program is scheduled for next week. Any delays in the adoption of the program may negatively affect market sentiment and support the protective greenback.
The USD index fell by almost 0.2%, to 90.35 points the day before, an improvement in risk appetite attracted buyers to stocks, rather than the safe-haven dollar.
Meanwhile, the euro failed to take full advantage of the greenback's broadside weakness.
The EUR/USD pair climbed above 1.2040 last Friday, but then it corrected to 1.2117.
According to IHS Markit, the composite index of business activity in the eurozone, according to a preliminary estimate, rose to 48.1 points in February from 47.8 points in January.
Although the value of the indicator was the highest in two months, the indicator is still in the decline zone.
At the same time, the assessment of the US composite PMI index in February rose to 58.8 points, which indicates the highest growth rate of business activity in the country since March 2015.
In addition, the pace of deployment of the vaccination campaign against COVID-19 in the EU still leaves much to be desired, despite the new supplies of the vaccine.
In this regard, Europe lags behind the United States, where 17% of the population has already been vaccinated.
Although, following the results of the last five days, the EUR/USD pair expanded the boundaries of the weekly range, but remained in it.
In order to continue rising, the pair needs to surpass the resistance area of 1.2170-1.2180. This will make it possible for the bulls to test the January highs again near 1.2350.
Strong support is at 1.2060 and 1.1970. The pair should attract buyers in case the price falls to these levels.