FOREX-Dollar drops as traders prepare for Yellen to talk up stimulus


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    * Dollar weakens vs most currencies
    * Yellen to testify at Senate Finance Committee
    * Euro gains 0.5% to $1.21; Aussie rallies
    * Graphic: World FX rates

 (Adds new quote, details, latest prices)
    By Tommy Wilkes
    LONDON, Jan 19 (Reuters) - The dollar dropped on Tuesday as
investors prepared for U.S. Treasury Secretary nominee Janet
Yellen to talk up the need for major fiscal stimulus and commit
to a market-determined exchange rate when she testifies later in
the day.
    The dollar's fall came after a 2% rise so far in 2021, a
gain which caught off guard many investors who had bet on a
further decline following its weakness in 2020. 
    The dollar has been helped in January by rising U.S.
Treasury yields and some investor caution about the strength of
the global economic recovery from the coronavirus pandemic. But
most analysts are sticking with their calls for a weaker dollar
from here. 
    "On fiscal policy, Yellen is to suggest that the US `act
big' and make use of the low borrowing costs. On the dollar, it
should be reiterated that the new administration is committed to
the market-determined exchange rate. Both are in line with our
weak USD outlook," ING analysts wrote.
    President-elect Joe Biden has proposed a $1.9 trillion
fiscal stimulus package.
    The Wall Street Journal on Monday reported Yellen, who is
appearing before the Senate Finance Committee, will affirm a
more conventional commitment to market-set currency rates in her
 Senate testimony on Tuesday.*:nL1N2JS0LP
    That contrasts with outgoing President Donald Trump, who
often railed against dollar strength.
    The dollar index, which measures the currency against a
basket of other currencies, dropped 0.3% to 90.472  =USD , but
it was still above the its more than two-and-a-half-year low of
89.206 touched at the start of this month.
    With the dollar weakening, the euro gained, rising 0.5% to
$1.2132  EUR=EBS .
    The single currency was unaffected by Italian Prime Minister
Giuseppe Conte's facing a confidence vote to stay in office. The
result vote is due after 1800 GMT.*:nL1N2JU0I8 
    More volatile and commodity-linked currencies, such as the
Australian dollar, also benefited from the weaker U.S. currency,
with the Aussie up 0.3% at $0.7707  AUD=D3 .
    Rising commodity prices in recent months have boosted
currencies of countries with large commodity exports, such as
Australia and Canada.
    "We continue to see scope for further gains in
commodity-related currencies in the year ahead, which should
benefit as well from the strengthening global recovery once
vaccines are rolled out more widely," said Lee Hardman, an
analyst at MUFG.
    Sterling rose 0.2% to $1.3620  GBP=D3 .
    The dollar rose against the yen and was last up 0.3% to
104.02 yen  JPY=EBS , although still consolidating in a narrow
range after reaching a one-month high of 104.40 last week.
    Emerging-market currencies were mostly higher but were some
way off recent highs.

World FX rates
U.S. dollar index
 (Editing by Gareth Jones, Larry King)
 ((; Reuters Messaging:

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