Dollar at two-week lows, Swedish crown hits 1-month high vs euro

The dollar traded near two-week lows on Wednesday as demand for safe-haven assets ebbed, while Sweden's crown hit its highest levels in a month against the euro.

The dollar index drifted to a two-week low of 90.299 for the first time this month and set for a third day of losses. It last traded 0.05% lower at 90.386.

Bitcoin consolidated around $46,500 after reaching a new high of $48,216 overnight following Tesla's disclosure of a $1.5 billion investment in the leading cryptocurrency.

Rival virtual currency ethereum, which often moves in tandem with bitcoin, reached a record $1,826 on Wednesday before pulling back slightly. It was trading 1.1% higher at $1,791.

Sweden's crown strengthened to a one-month high of 10.0406 crowns per euro ahead of the central bank's interest rate decision, then pared some of those gains after the bank kept monetary policy unchanged as expected.

Traditionally viewed as a safe-haven, the dollar has sunk against major peers as optimism over monetary and fiscal support, robust corporate earnings and coronavirus vaccines bolstered risk sentiment.

US consumer price inflation numbers for January are due at 1330 GMT, and along with a speech by Federal Reserve Chair Jerome Powell will be key events for the future direction of the dollar.

"The mix of clear upside price pressures, the risk of an overshoot and CPI staying higher for longer, along with a cautious Fed sticking to its Average Inflation Targeting framework to make up for past inflation undershoots, should lead to a lower USD as US real rates remain deeply negative," ING strategists wrote in a note to clients.

There has been a tug-of-war among traders over the impact on the dollar of US President Joe Biden's planned $1.9 trillion fiscal stimulus package.

On the one hand, it is expected to speed up a US recovery relative to other countries, bolstering the currency. But on the other, it is a major driver in a global reflation narrative that should lift riskier assets at the dollar's expense.

After a strong start to the year for the greenback, the latter view appears to be regaining sway, with last week's US jobs data providing the turning point, according to Westpac analysts.

Kristoffer Kjær Lomholt, chief analyst for forex and rates strategy at Danske Bank, said: "The key question remains if the US will be at full employment in 6 months and pricing of US real rates on the back of that."

"We continue to see downside risk for EUR/USD (targeting 1.16 on 12M) and though s/t risks are probably more balanced after the correction, we do see a situation where an open dollar position could amplify investor returns this year."

The dollar gained 0.2% to 104.70 yen. The Japanese currency earlier hit its highest against the greenback since Jan. 29.

The euro edged up to $1.2129, adding to a three-day gain and hitting its highest since the start of February.

The British pound set fresh three-year highs of $1.3855.