Major currencies and dollar
Major G10 currencies have strengthened against the dollar as an oil rally weighed on the US unit. Reuters

The sharp reversal in crude oil prices has reduced the safe haven demand of the US dollar, leading to a bounce in euro and several commodity currencies.

The USD index fell to a 13-day low of 93.26 on Tuesday before edging back up to 93.84 by Wednesday as Brent crude for spot delivery rallied to a more than one-month high of $58.95/bbl.

The US currency is off 2.3% from the 12-year high it hit on 23 January while the spot Brent is up 30% from the multi-year low it hit on 13 January.

Meanwhile, euro has strengthened to a 13-day high of 1.1535 and the Canadian dollar to 1.2352, which is also a near 2-week high against the greenback.

Sterling is up 0.9% from Monday's close and the Australian dollar has rallied 2.3% from the six-year low of 0.7626 it touched on Tuesday. The market is now waiting for the Bank of England policy review on Thursday.

Data from the US on Tuesday was also weaker than expected, adding to the selling pressure on the dollar.

Manufacturing PMI by Institute of Supply Management fell to 53.5 for January from 55.5 in December while the market had been expecting a modest decline to 54.5. The ISM prices paid index dropped to 35 from 38.5 against the consensus of a rise to 40.0.

Construction spending in the US grew on 0.4% in December, another data showed, compared to the market forecast of a 0.7% rise.

With the fundamental strength of major developed economies other than the US dampened by disinflation or deflation risks, the demand outlook for crude oil based on global economic recovery remains bleak and therefore the safe haven appeal of the greenback is unlikely to diminish further.

Crude oil is now seeing a technical reversal thanks to the strength of the support provided by a long term upward channel dating back to 1998.

Still, the commodity has to break through levels like $67 and $77 to significantly weaken the downtrend that has begun in June last year.

Also, levels like 92.50, 92.0 and 91.10 are crucial for the USD index on the downside in order to continue the recent downtrend.

Brent crude spot daily
Brent crude for spot delivery has made a 30% jump off its recent low to Tuesday's high. IBTimes UK/FXStreet