The Dollar regained ground on Wednesday following major dips against the Pound and Euro on Tuesday, whilst the Japanese Yen stayed close to 34-year lows.

The Dollar index, measuring the currency against six major rivals, was up 0.2% at the time of writing at 105.84, after previously dropping to its lowest since 12th April at 105.59.

The single currency edged down 0.1% at $1.0688 on Wednesday, following the 0.4% rally the day before as data revealed eurozone business activity grew at its fastest pace in almost a year, predominantly a result of a recovery in services.

In addition, Sterling saw gains as British business activity surged to its highest level in almost a year, and Bank of England Chief Economist Huw Pill suggested that interest rate cuts were not imminent, Reuters reports.

The Pound dropped slightly by 0.1% to $1.2431, after a 0.8% increase in the previous session.

In contrast, US business activity declined to a four-month low in April due to weaker demand, whilst inflation rates eased marginally.

“We'd be cautious about jumping into a bearish narrative on the back of soft activity surveys, as hard data has generally helped the Dollar of late,” said Francesco Pesole, ING FX strategist. 

On Friday, the Fed's targeted consumer inflation measure, the PCE deflator, will be released. Currently, markets are indicating a 73% probability of the first US rate cut by September, according to the CME's FedWatch tool.

“In the short term I think the Dollar will continue to do well,” according to Dane Cekov, senior macro & FX strategist at Nordea Markets.

“If US inflation continues to strengthen, the Dollar will remain in favour.”

Last week the Dollar index hit a five and a half-month top of 106.51 as ongoing inflation led Federal Reserve officials to indicate no hurry in easing policy.

However, with the Dollar rebound, it signalled a fresh 34-year top against the Japanese Yen at 154.98.

Throughout this week, the pair has traded within an extremely tight range, fluctuating between a high near 155 and a low of 154.50. Traders are cautious, as a move above 155 could prompt Japanese officials to intervene by selling the Dollar.

At the time of writing the greenback was trading at 154.905 Yen.