Traders were also waiting for the European Central Bank’s meeting later in the day to see if it was in a more hawkish mood than its global counterparts.
“Early in the week I was saying it was all driven by the continued rise in US yields, stocks were down, the dollar was soaring, and now, because of what’s going on in Treasuries, it’s all is reversed,” said Ray Atrrill, global head of FX strategy at National Bank of Australia.
The benchmark yield on 10-year Treasury bills was 2.7120%. It rose steadily at the start of the month – driven by expectations of more aggressive Federal Reserve tightening to fight inflation – and reached as high as 2.836% on Tuesday, ahead of US inflation figures.
However, although high, these numbers were not as bad as some had feared, which observers said caused a pause in yields.
The two-year yield was also down to 2.3604%.
The British pound hit $1.3131 in morning trading, its highest level in a week against the dollar, after jumping 0.9% on Wednesday, its biggest daily percentage gain since June 2021, partly boosted by high inflation figures.
The euro also gained ground against the dollar, rising 0.54% on Wednesday, but fell against the pound.
The dollar index, which measures the dollar against six other currencies, remained at 99.818 after falling 0.52% overnight.
As well as the slowdown in US yields, Mr Attrill said part of the moves could be explained by UK CPI figures coming in better than expected, “money is flirting with the idea that the Bank of England could make 50 basis points in May – although we didn’t expect that”.
The market has positioned itself for a hint that the ECB may be winding down its quantitative easing program in the second quarter rather than the third, Atrrill said.
“The risk is that they go down the route in terms of becoming overtly less dovish.”
On Wednesday, the Bank of Korea surprised the markets with a rate hike, and the Monetary Authority of Singapore also tightened its policy.
The Singapore dollar gained around 0.5% to hit a one-week high against the dollar after the move. The Korean won was less affected, rising 0.16%.
On Wednesday, the Bank of Canada and the Reserve Bank of New Zealand both raised rates by 50 basis points, the biggest hike for either in about 20 years.
The dollar weakened 0.6% against the loonie on Wednesday after the move, but gained ground against the kiwi as the RBNZ indicated in its post-meeting statement that the maximum encashment rate remains unchanged due to concerns about the global outlook.
The pause in yields allowed the Japanese yen to manage a small rally in US trade that continued into early Asia. It was last at 125.37 per dollar, after falling to 126.31 on Wednesday, its lowest level in 20 years.
More than three-quarters of Japanese companies say the yen has fallen to the point of hurting their business, according to a Reuters poll, and almost half of companies expect their profits to fall.