US dollar rises, euro falls ahead of Powell's testimony

London

THE US dollar rose and the euro fell on Tuesday, as markets focused on divergent reactions to the recent rise in government bond yields, while the New Zealand dollar dropped to a three-month low on new measures to cool the housing market.

There was a cautious tone in global markets, with equities in the red, after a weak Asian session led by declines in Chinese markets.

The United States, the European Union, Britain and Canada sanctioned Chinese officials on Monday over human rights abuses in Xinjiang. Beijing hit back with punitive measures against European lawmakers, diplomats, institutes and families.

Also contributing to market caution was a third wave of the Covid-19 pandemic in Europe. Germany is extending its lockdown and urging citizens to stay at home for five days over the Easter holidays, Chancellor Angela Merkel said.

"The common currency looks set to remain quite vulnerable on the back of virus-related developments," ING strategists told clients. The European Central Bank's (ECB) chief economist, Philip Lane, said that the central bank would do its part to keep government bond yields ultra-low.

The dollar index was up 0.3 per cent at 92.111 at 1152 GMT. Euro-dollar was down 0.4 per cent at US$1.1882. The dollar index has gained around 2.4 per cent so far in 2021, as speedy rollouts of Covid-19 vaccines in the US and the Biden Administration's US$1.9 trillion stimulus are seen lifting growth, driving up bond yields and drawing investors.

Investors perceive the ECB as more concerned about the rise in yields, and therefore less likely to tighten monetary policy, than the US Federal Reserve, and that this is fuelling dollar gains, said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.

Market participants were expected to be listening to Congressional testimony by US Federal Reserve chair Jerome Powell and Treasury secretary Janet Yellen later in the day for any hints about their tolerance for rising yields, which could determine the future direction for the dollar.

Elsewhere, the New Zealand dollar fell overnight and extended its losses as European markets opened, dropping to a three-month low against the US dollar. At 1203 GMT, it was down 1.7 per cent on the day at 0.70385. The drop was triggered by the introduction of measures to curb speculation on the red-hot housing market, where house prices have risen 23 per cent in 12 months. REUTERS