US dollar flat as focus turns to Powell testimony

London

THE US dollar struggled for direction on Tuesday (Jan 11), stuck within recent ranges as investors waited for US Federal Reserve chair Jerome Powell to speak at a congressional hearing later in the day.

Global stocks edged higher, following a late-session recovery for Wall Street, while US Treasury yields were a touch higher. Equity markets have had a weak start to the year, falling due to bets that the Fed will tighten policy earlier than initially expected.

At 11.51 am GMT, the US dollar index was around 0.1 per cent lower on the day, at 95.842 - well below the 16-month highs it touched at the end of November amid increasing hawkishness from Fed policymakers.

Joel Kruger, currency strategist at LMAX Digital, cited inflation as "the thing that nobody can really nail down and the Fed keeps manoeuvring as far as the guidance goes". He said: "If we continue to see downside pressure in stocks . . . not only do we have dollar demand on yield differentials but you also have dollar demand on flight to safety." Some of Wall Street's biggest banks now expect 4 interest rate hikes this year, starting in March.

Meanwhile, the new head of Germany's central bank said the eurozone's inflation surge is not entirely temporary and that there could be higher-than-projected readings. His comments challenge the European Central Bank's narrative on price pressures.

Euro-dollar was stuck within recent ranges, around US$1.13425 , but the euro hit a 7-week high versus the Swiss franc (CHF), with the pair changing hands around 1.0507. This follows a rise in sight deposits held by the Swiss National Bank last week, which is a possible sign that the central bank is intervening to limit the franc's strength.

The Swiss franc is also acting as a safe haven to hedge political risk from Italy, ING said. The Italian Parliament will convene to choose a new president this month with Premier Mario Draghi seen as the leading candidate.

The US dollar was up 0.1 per cent against the Japanese yen at 115.370. Japanese households' inflation expectations rose to a 2-year high, a quarterly survey showed, in a sign the rising cost of living was starting to change public perceptions about future price moves. REUTERS