The dollar drifted lower on Wednesday after hitting its highest in more than a week in the previous session, while US 10-year Treasury yields dipped as investors' focus slowly shifted from Greece to prospects for higher US interest rates. A lack of progress on the Greek debt crisis stoked risk aversion in the market, boosting the safe-haven yen against the dollar, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The outlook for the dollar, however, remained upbeat despite Wednesday's retreat. Investors expect US interest rates in the world's largest economy to rise sooner than later. Wednesday's data on US gross domestic product confirmed the improving outlook. The final figure for the first quarter showed contraction in the economy was less than previously estimated.
GDP fell at a 0.2 percent annual rate in the quarter instead of the 0.7 percent pace of contraction reported last month. This "will bode well for the 2015 average and suggests Q2 was entered with better momentum than originally assumed," said Omer Esiner, chief market analyst of Commonwealth Foreign Exchange in Washington. In late New York trading, the dollar index was down 0.1 percent at 95.302. On Tuesday, it had its strongest daily performance since late May, climbing as much as 1.2 percent. It hit a daily peak of 95.636, its highest level since June 12.
The dollar benefited on Tuesday from reasonably strong US data; comments from Federal Reserve Governor Jerome Powell, who said he was prepared to raise interest rates twice this year; and higher US yields. News of the remaining differences between Greece and its eurozone creditors pulled the euro off highs hit earlier in the day. It was still up 0.2 percent at $1.1196 in late afternoon trading.
Greek Prime Minister Alexis Tsipras flew to Brussels to meet eurozone officials on Wednesday to try to bridge gaps on key elements of the proposals made by his left-wing government to shore up state finances in return for vital loans. Tsipras also met European Central Bank President Mario Draghi, IMF head Christine Lagarde and European Commission President Jean-Claude Juncker on Wednesday afternoon before a 1700 GMT meeting of the Eurogroup of finance ministers. As of late afternoon, there had been no agreement between Greece and its creditors. The expectation is that a deal could be reached on Thursday. Against the yen, the dollar was down 0.1 percent at 123.86 yen.