Dollar Strengthens Ahead of Powell, Yellen Testimony

Dollar Strengthens Ahead of Powell, Yellen Testimony

Investing.com – The dollar strengthened in early European trading Tuesday, with focus turning towards testimony from Fed chief Jerome Powell and Treasury Secretary Janet Yellen and what this may mean for bond yields. 

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 91.877, just below recent highs.

USD/JPY was down 0.1% at 108.69, EUR/USD fell 0.1% to 1.1925, after Germany, the euro zone’s largest country, extended its lockdown until April 18, while GBP/USD fell 0.2% to 1.3833.

Elsewhere, NZD/USD fell 1.2% to 0.7076, hitting a three-month low, after the New Zealand government announced new measures to try and cool its fast-growing property market by increasing the supply of houses and removing tax incentives for speculators. This dragged the risk-sensitive AUD/USD lower, with this pair 0.8% lower at 0.7685. 

That said, attention Tuesday will be on Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen, who are scheduled to make their first joint appearance before the U.S. House Committee on Financial Services. 

The dollar has appreciated some 2% this month, boosted in part by rises in U.S. Treasury yields, something that Fed officials have signalled that they are prepared to live with.

Powell and Yellen are expected to be asked about the Treasury’s and Federal Reserve’s pandemic response, as well as the potential risks from the Fed’s super-easy policy including how far bond yields will rise. 

Ten-year U.S. bond yields eased to 1.67% in early Tuesday trade, after climbing above 1.75% last week.

“DXY [the dollar index] remains supported largely by the sluggish roll-out of vaccines and new lockdowns in Europe – remember European FX has a 77% weight in the DXY. But arguably DXY should have done even better given the 70bp+ rise in US 10-year yields this year,” said analysts at ING, in a research note.

Also of interest this week, the U.S. Treasury will sell $60 billion of two-year notes later Tuesday, $61 billion of five-year notes on Wednesday and $62 billion of seven-year notes on Thursday.

The Treasury will have to sell a lot of paper to fund the substantial budget deficit. Although recent auctions have proceeded smoothly, the $62 billion seven-year note auction, in late February, saw the lowest demand ratio for that maturity on record and prompted a sharp rise in yields.

Elsewhere, USD/TRY rose 1.3% to 7.8956, continuing to weaken after Monday’s sharp 7.5% drop in the wake of President Recep Tayyip Erdogan replacing hawkish central bank governor Naci Agbal with Sahap Kavcioglu over the weekend.

USD/CNY rose 0.1% to 6.5112, with the Chinese yuan holding largely steady despite the United States, the European Union, Britain and Canada imposing sanctions on Chinese officials on Monday for human rights abuses against Muslim Uighurs in northwestern China.

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