The US dollar is trading near a six-week low as investors shift their focus to Federal Reserve Chairman Jerome Powell’s response to rising inflation expectations. The prices of commodities such as oil, copper, lumber, and milk powder have surged, leading to multi-year highs for currencies like the Australian and New Zealand dollars. However, this rise in inflation expectations has also resulted in a sell-off in longer-dated bonds. Traders are anticipating Powell’s testimony before Congress, where they expect him to reassure that the Fed will tolerate higher inflation without immediately raising interest rates. This could calm bond markets and potentially lead to further gains in trade-exposed currencies at the expense of the dollar.
Ahead of Powell’s appearance, there were minimal movements in the market. However, the confidence that low US interest rates will persist could pave the way for more gains in currencies that rely on trade, causing the dollar to weaken. The US dollar index is currently sitting just above its lowest level since mid-January, while the Australian dollar and New Zealand dollar are trading steadily at their highest levels in nearly three years. The euro saw a small gain and may soon test resistance around $1.2220, while the pound continues to hold above $1.40 at $1.4067. The Japanese yen, which has been the worst performing major currency of 2021 due to its sensitivity to falling US Treasury prices, has stabilized at 105.02 per dollar. Additionally, Bitcoin has steadied above $50,000 after a volatile night of trading.
