The dollar was on the backfoot in Asia on Wednesday as the US yield curve flattened to its lowest spread in a decade, while dovish comments from the Fed chief late on Tuesday dragged the currency even lower ahead of the Fed meeting minutes. Energy markets also posted significant moves during the session, with oil prices heading towards two-year high levels.

The difference between the 2-year and 10-year US Treasury yields touched the lowest since November 2007 on Tuesday, spreading fears of a possible economic downturn. This occurred as investors expect the Fed to continue to raise short-term interest rates, while they remained pessimistic about the future economic outlook, driving long-term yields lower. The dollar index which gauges the dollar’s strength against six major currencies retreated by 0.14% on the day to 93.81. Dollar/yen lost the most, falling by 0.30% to 112.07. The dollar-denominated gold was trading 0.22% higher at $1,283.50 per ounce.

Remarks by the Fed chair Janet Yellen late on Tuesday, who gave a speech at the NYU Stern School of Business in New York, failed to support the greenback. Yellen said that the Fed projects inflation to rebound next year but policymakers still have doubts on whether inflationary drivers will prove long-lasting.

Next on the day, the focus will turn to the Fed meeting minutes due at 1900GMT as investors will be eager to identify any indications on the path of interest rates. Data on the US durable goods orders and initial jobless claims and will also gather some attention later today.

The euro climbed slowly by 0.17% to $1.1758 as markets were less concerned that political noise in Germany would harm the Eurozone’s relative economic performance.  Meanwhile, in Germany, a poll conducted by INSA for the Bild daily showed that almost half of Germans favored new elections after coalition talks collapsed on Sunday. Moreover, the results indicated that Germans prefer the left-center SDP to rule the country together with Merkel’s CDU party. Note that the former shared the country’s leadership with Merkel’s Conservatives during the past four years, but the Socialists lost a lot of support in September’s elections.

In the UK, the Finance Minister, Philip Hammond, will deliver his Budget Statement to the British Parliament around 1230GMT. Hammond is expected to give a brief on the country’s current economic conditions, future projections and the health of the public finances. Most importantly, traders will look forward to hearing whether Hammond will downgrade the country’s growth outlook for the next four years. This could restrict the amount Britain wants to put aside to mitigate Brexit risks. The pound was mainly flat during Asian trading hours at $1.3247. Euro/pound was up 0.15% at 0.8879.

Turning to energy markets, oil prices were on track to hit two-year high levels after the API weekly report surprisingly showed on Tuesday that US crude oil inventories fell by the most in three weeks. US crude stocks fell by 6.356 million barrels, while analysts forecasted a decline of 1.500 million barrels. This drove WTI crude up by 1.85% to $57.88 per barrel and pushed Brent 1.02% higher to $63.21. Consequently, the oil-linked loonie surged by 0.21%, leading dollar/loonie down to 1.2752.

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