The USD index retreated from monthly highs after the speech of Treasury Secretary nominee Janet Yellen in the Senate.

Yellen urged lawmakers not only to endorse her candidacy, but also to support a $1.9 trillion economic stimulus package.

The former head of the Federal Reserve also said that the exchange rate of the US dollar should be determined by the market.

The latest market positioning data suggests that investors are overwhelmingly shorting the dollar as they believe the US government and current account deficits will put pressure on the greenback.

Nomura specialists believe that the bearish trend in the USD may resume soon.

"We think that Yellen is at best indifferent to a weakening dollar, and this may be enough to leave things as they are," strategists told OCBC, referring to the downward trend that caused the greenback to lose value about 12% from last year's peak levels.

Bank of America experts, in turn, noted that the results of the recent US presidential elections have strengthened the dollar's potential to decline in the short term, but a rally is likely later this year, as the recovery in the US economy should support the national currency.

Yellen's comments fueled the risk appetite of investors. Against this background, the greenback weakened against most of its main competitors on Tuesday. However, on Wednesday, the American currency was able to partially win back its losses, rising above 90.5 points.

On the eve of the inauguration of the 46th President of the United States, cautious sentiments returned to the market.

"Although the transfer of power to the United States is proceeding peacefully, a number of acute issues will still remain. Can the Biden administration speed up vaccinations and win the race against highly infectious COVID-19 strains? Will Congress support new incentive payments and other measures? In addition, the outgoing Donald Trump administration has taken rather aggressive measures against China, and the market may not like it if Biden does not soften the position indicated by the Republicans regarding Chinese companies and their placement on American exchanges," SaxoBank said.

The day before, the main currency pair rose to 1.2145, then it slightly corrected, completing trading at 1.2125.

After an unsuccessful attempt to overcome the area of 1.2155-1.2160 on Wednesday, the EUR/USD pair rolled back towards the level of 1.2100.

According to analysts, pressure on the single currency comes from threats of strengthening and expanding quarantine restrictions in the EU to combat the spread of COVID-19, as well as the slow pace of vaccination of the region against the virus.

"We see more and more headlines that the current restrictions in the eurozone will be extended further. This means that Europe is facing a double recession. This situation changes the alignment before tomorrow's ECB meeting, which, most likely, will take place without any special events in terms of political statements, however, the market may receive from the regulator a signal of a possible easing of monetary policy in the future," said Credit Agricole specialists.

The first meeting of the ECB Governing Council this year will take place on Thursday. It is expected that the regulator will leave the interest rate unchanged, but may speak about the recent growth of the euro. However, attempts by the Central Bank to conduct verbal intervention are unlikely to work without cutting the interest rate.

According to Bloomberg, the ECB may use a yield spread control strategy to equalize lending costs across European countries. This could put pressure on the euro.

"Immediate support for EUR/USD moved to 1.2100 and further to 1.2085. A close below 1.2054 would bring into play 1.2011 (September high) and 1.1945 (23.6% Fibonacci retracement level relative to the 2020-2021 rally)," strategists at Credit Suisse noted.

"A break above 1.2167 would target 1.2179-1.2180, and then 1.2223 and 1.2231. However, only the breakout of the last mark will neutralize the scenario with the formation of the top and will signal the completion of the corrective pullback and start the growth to the highs of this year in the area of 1.2350-1.2355," they added.