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

Reuters

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    * 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 lowest
since Jan. 13 on Tuesday as investors shifted focus to how U.S.
Federal Reserve chief Jerome Powell might respond to
expectations of resurgent inflation, while commodity-linked
currencies hovered near multi-year highs.
    The rise in inflation expectations as investors bet on a
post-pandemic economic rebound and the so-called "reflation"
trade had lifted U.S. government bond yields and - briefly - the
dollar until earlier this month.
    But analysts expect Powell, who testifies before Congress at
1500 GMT, will provide reassurance that the Fed will tolerate
higher inflation without rushing to raise rates. That might calm
bond markets and eventually weigh on the dollar, they said. 
    "Mr. Powell will very likely reiterate that the Fed is a
long way from meeting its goals and that it will likely take
some time before 'sufficient progress' has been made to taper
its bond purchase programme," UniCredit analysts said.
    Joe Capurso, Commonwealth Bank of Australia currency analyst
in Sydney, said he thought Powell would deliver "a bit of a cold
shower and say: 'Mr Market you're getting a bit ahead of
yourself....the U.S. economy is long, long way from full
employment.'"
    The dollar index was last at 90.046  =USD , flat on the day,
having earlier fallen to 89.941, its weakest since Jan. 13.
    Positioning data shows investors overwhelmingly betting that
a U.S. dollar, which has been dropping since last March, will
keep falling as the world recovers from the COVID-19 pandemic.
 0#NETUSDFX 
    The euro rose 0.1% to $1.2168  EUR=EBS . Euro zone
government bond yields had also been rising, but on Monday
dropped after European Central Bank President Christine Lagarde
said the bank was "closely monitoring" rising borrowing costs. 
    Commodity-linked currencies have been among the best
performers in 2021. Surging prices for materials from oil to
milk powder have pushed currencies such as the Canadian,
Australian and New Zealand dollars to their highest in roughly
three years.
    On Tuesday, the Aussie traded down slightly at $0.791
 AUD=D3  having earlier hit a high of $0.7934. The New Zealand
dollar was also down  NZD=D3  while the Canadian dollar was just
below its Monday high  CAD=D3 .
    Sterling hit a new nearly three-year high of $1.4098
 GBP=D3 , up 0.3% on the day, as investors stuck with their bets
that a rapid vaccine rollout would allow the British economy to
reopen over the next few months.
    Prime Minister Boris Johnson laid out his step-by-step plan
for ending the current British lockdown on Monday.
    The Japanese yen  JPY= , the worst performing major currency
of 2021 because rising U.S. Treasury yields can draw investment
from 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.  urn:newsml:reuters.com:*:nL4N2KT0RC 

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World FX rates    https://tmsnrt.rs/2RBWI5E
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 (Additional reporting by Tom Westbrook in Singapore; editing by
Barbara Lewis)
 ((thomas.wilkes@tr.com; +44 (0) 7769 955711;))

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