The US dollar declined lower at the start of the European session session at a two-week low, with market focus now on the publication of US inflation data and Federal Reserve (Fed) Chairman Jerome Powell's speech tonight.
The 10-year U.S. treasury yield is stable at around 1.15%, after rising earlier. The decline in the bond market has given rise to risk sentiment taking over.
Market focus is now focused on the publication of US inflation data which is projected to show a slight increase in January.
Investors are now wondering whether the forthcoming inflation figures will bring back an increase in US treasury yields, and at the same time support the US dollar, or vice versa.
Meanwhile, the pound sterling continued to strengthen its momentum strengthening by hitting 1.38500 against the US dollar at the beginning of the European session.
While there is uncertainty in Brexit, investors are more focused on the prospects for the UK economic recovery which is seen to be brighter following the widespread vaccination campaign and the increasing number of daily cases.
The euro also remained trading strong above the price level of 1.21000 even after reports that Germany was currently planning to extend the coronavirus ban until March 14.
The number of cases of daily infections in Germany is now seen to be easing, but concerns about the effects of new variants of more contagious viruses may affect the country's decision to maintain sanctions.
