By Chelsey Dulaney

The dollar tumbled Thursday as investors grew cautious on the U.S. economic outlook.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, fell 1% to 92.08, retreating further from the 14-year-highs hit earlier in the week.

Analysts said mixed economic data and minutes from the Federal Reserve's December meeting weighed on the dollar, prompting some investors to dial back bullish bets on the dollar that have been popular since the November U.S. election.

"This is a realization that the market got ahead of itself," said Vassili Serebriakov, aforeign-exchange strategist at Crédit Agricole.

Hedge funds and other speculators were holding about $25 billion in bullish dollar bets as of Dec. 27, its highest level in nearly a year, according to Commodity Futures Trading Commission data.

Disappointing private-sector hiring data cast some doubt on the health of the U.S. labor market ahead of Friday's U.S. nonfarm payrolls report. Signs that the labor market is softening could hurt the Fed's case for raising rates.

At the same time, a more dovish Fed would alleviate pressure on emerging-market economies, especially China. Higher U.S. rates typically boost the dollar, making emerging-market nations' dollar-denominated debts more expensive to pay back.

Concerns over higher U.S. rates have battered the Chinese yuan in recent months and ramped up pressure on Chinese authorities to stem capital outflows.

On Thursday, the Chinese yuan rose over 1% against the dollar in offshore markets, on track for its biggest two-day gain since the currency began trading freely outside of mainland China in 2010.

Other emerging-market currencies also rallied, with the dollar falling 1.1% against the Korean won and 0.5% against the Malaysian ringgit.

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com

(END) Dow Jones Newswires

January 05, 2017 17:10 ET (22:10 GMT)

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