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FOREX-Dollar hits six-week low as traders prepare for Powell

Tommy Wilkes
·2 min read

* Dollar falls, hits lowest since Jan. 13

* Aussie, Kiwi hold near multi-year highs

* Sterling hits new nearly 3-year high

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Tommy Wilkes

LONDON, Feb 23 (Reuters) - The dollar touched its lowestsince Jan. 13 on Tuesday as investors shifted focus to how U.S.Federal Reserve chief Jerome Powell might respond toexpectations of resurgent inflation, while commodity-linkedcurrencies hovered near multi-year highs.

The rise in inflation expectations as investors bet on apost-pandemic economic rebound and the so-called "reflation"trade had lifted U.S. government bond yields and - briefly - thedollar until earlier this month.

But analysts expect Powell, who testifies before Congress at1500 GMT, will provide 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 programme," UniCredit analysts said.

Joe Capurso, Commonwealth Bank of Australia currency analystin Sydney, said he thought Powell would deliver "a bit of a coldshower and say: 'Mr Market you're getting a bit ahead ofyourself....the U.S. economy is long, long way from fullemployment.'"

The dollar index was last at 90.046, flat on the day,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.

The euro rose 0.1% to $1.2168. Euro zonegovernment bond yields had also been rising, but on Mondaydropped after European Central Bank President Christine Lagardesaid the bank was "closely monitoring" rising borrowing costs.

Commodity-linked currencies have been among the bestperformers in 2021. Surging prices for materials from oil tomilk powder have pushed currencies such as the Canadian,Australian and New Zealand dollars to their highest in roughlythree years.

On Tuesday, the Aussie traded down slightly at $0.791having earlier hit a high of $0.7934. The New Zealanddollar was also down 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 vaccine rollout would allow the British economy toreopen over the next few months.

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

The Japanese yen, the worst performing major currencyof 2021 because rising U.S. Treasury yields can draw investmentfrom Japan, steadied at 105.13 per dollar, down slightly.

Bitcoin, the world's biggest cryptocurrency, shed 11% to$48,481 after a wild overnight ride where it sank as low as$47,400.

(Additional reporting by Tom Westbrook in Singapore; editing byBarbara Lewis)