Frustrated dollar bulls not giving up yet

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What's weighing on the greenback?

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What's weighing on the greenback?

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This year has been trying for dollar (New York Board of Trade (Futures): =USD) bulls betting on stellar greenback gains, but they're not giving up yet.

Measured against a basket of currencies of the U.S's main trading partners, the dollar hovered near a two-month high on Thursday, benefiting in part from weakness in theeuro (Exchange:USDEUR) which has come under pressure from talk of a cut in euro zone interest rates in June.

Read More Bond yields hit new 2014 lows-more room to fall?

"It's been a very frustrating year for most FX investors, but particularly for dollar bulls like us at BNP Paribas ," Steven Saywell, global head of currency strategy at the French bank told CNBC.

"The market started the year wanting to buy the dollar and most investors have given up or have been stopped out of that position," he said. "What we're seeing now is a long-dollar position starting to come back into the market, so there is a bit more confidence."

The dollar index was trading at about 80.52 in Asia on Thursday - holding near the previous day's almost two-month peak.

It's up just 0.6 percent from where it ended last year when many currency analysts forecast strong gains for the dollar as a tapering of U.S. monetary stimulus got underway.

"The dollar is coming back from a weak level - only recently was the euro at new highs," Greg Gibbs, a senior currency strategist at RBS (London Stock Exchange: RBS-GB) told CNBC Thursday. "The dollar is coming back as a value play at a time when policy easing is taking place in other parts of the world," he added.

The euro fell to its lowest level against the dollar since mid-February on Wednesday amid speculation about monetary easing at next week's meeting of the European Central Bank.

What about Treasurys?

The dollar has struggled to make headway against its peers this year because of a decline in U.S. government bond yields and a soft tone in economic data, analysts say.

Read More Commentary: Dollar dissonance

"We had very disappointing economic growth in the first quarter, which will probably be revised to a contraction this week, but the second quarter is looking much perkier. Our view is 3.5 percent annualized growth, so that would be a big turnaround," said BNP Paribas' Saywell, adding that once strong data starts coming through that should push up Treasury yields and the greenback.

Data released later on Thursday is expected to show the first negative quarterly U.S. GDP reading in three years, with severe weather conditions taking a toll on the economy.

Read More Here's why markets should look past negative GDP

The benchmark 10-year Treasury yield fell to 2.43 percent on Wednesday, extending its recent downward move to a 10-month low.

"I think it's going to be tough for the dollar to capitalize on the strengthening in data we should get in the months ahead," said Todd Elmer, a currency strategist at Citi (NASDAQ:CTRN - News).

"The big problem is that we are not seeing a rise in yields, which is because of the pushback we're getting from the Fed in light of stronger data and it doesn't look like it's going to change its tune anytime soon," he added.

Since the start of this year, the Federal Reserve has been unwinding its stimulus program. The central bank said it would continue to support the U.S. economy for as long as it thinks is necessary.

The Fed has kept its key interest rate at a record low of zero percent since 2008 when the global financial crisis triggered extraordinary measures to support the economy.



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