FOREX-Dollar bounces off six-week low as traders prepare for Powell - Yahoo Finance

* Dollar briefly hits lowest since Jan. 13

* Aussie, Kiwi hold near multi-year highs

* Bitcoin takes another dive after record price

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E(Adds chart, new quote, latest prices)

By Tommy Wilkes

LONDON, Feb 23 (Reuters) - The dollar rebounded off six-weeklows on Tuesday as investors' focus shifted to how U.S. FederalReserve chief Jerome Powell might respond to resurgent inflationexpectations, while commodity-linked currencies hovered nearmulti-year highs.

The recent rise in inflation expectations as investors beton a post-pandemic economic recovery and the so-called"reflation" trade has lifted U.S. government bond yields. Thathad fed through to a higher dollar until earlier this month whenthe greenback resumed its decline.

Analysts expect Powell, who testifies before Congress at1500 GMT, to provide some reassurance that the Fed will toleratehigher inflation without rushing to raise rates. That might calmbond markets and eventually weigh on the dollar, they said.

"Mr. Powell will very likely reiterate that the Fed is along way from meeting its goals and that it will likely takesome time before "sufficient progress" has been made to taperits bond purchase program," UniCredit analysts said.

The dollar index was last at 90.143, up 0.1% on theday, having earlier fallen to 89.941, its weakest since Jan. 13.

Positioning data shows investors overwhelmingly betting thata U.S. dollar, which has been dropping since last March, willkeep falling as the world recovers from the COVID-19 pandemic.

"Only when the spike in U.S. yields becomes more disorderlyand spills forcefully into risk assets, would U.S. dollarexperience an across-the-board strength," said ING analysts in aresearch note.

The euro weakened 0.1% to $1.2151. Euro zonegovernment bond yields have also been rising but the rally tooka brief pause after European Central Bank President ChristineLagarde said on Monday the bank was "closely monitoring" risingborrowing costs.

Commodity-linked currencies have been among the bestperformers in 2021. Surging prices for materials from oil andcopper to lumber and milk powder have pushed currencies such asthe Canadian, Australian and New Zealand dollars to theirhighest in roughly three years.

On Tuesday, the Aussie traded down 0.2% at $0.7903having earlier hit a high of $0.7934. The New Zealand dollar wasdown marginally while the Canadian dollar was justbelow its Monday high.

Sterling hit a new nearly three-year high of $1.4098, up 0.3% on the day, as investors stuck with their betsthat a rapid rollout of the COVID-19 vaccine would allow theBritish economy to reopen over the next few months.

Prime Minister Boris Johnson laid out his step-by-step planfor ending the current British lockdown on Monday.

Bitcoin, the world's biggest cryptocurrency, fell sharplybelow $45,000 and was last down 15% at $45,953, extending itsdrop from a record set on Sunday of $58,354 as investors grownervous about sky-high valuations.

The Japanese yen, the worst performing major currencyof 2021 because rising U.S. Treasury yields can lure investmentfrom Japan, fell again. The dollar was last up 0.2% at 105.26yen per dollar.

(Additional reporting by Tom Westbrook in Singapore; editing byEmelia Sithole-Matarise)

Let's block ads! (Why?)