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Dollar pares gains before Fed's Powell speaks - REUTERS

MARCH 04, 2021

The dollar pared earlier gains on Thursday before an appearance by Federal Reserve Chairman Jerome Powell that will be watched for any sign the Fed is uncomfortable with U.S. Treasury yield increases.

The dollar has gained along with U.S. government bond yields as impending U.S. fiscal stimulus adds fuel to expectations of higher inflation and the rollout of vaccines against COVID-19 heightens optimism that the economy headed for recovery.

"The U.S. is assuming the leadership position on growth matters, fiscal dominance and certainly vaccinations," said Mazen Issa, senior FX strategist at TD Securities in New York.

The dollar index was little changed on the day at 91.094, after earlier rising to 91.223. The euro dipped 0.19% to $1.2039.

Investors want to see whether Powell expresses concern about a recent sell-off in Treasuries and if there is any change in his assessment of the economy before the Fed's next meeting, ending March 17.

Benchmark 10-year Treasury yields were last 1.47% after earlier rising as high as 1.49%.

"Comments that he (Powell) is monitoring events in the Treasury market might be enough to calm things down, encourage a return to high-yield FX and a softer dollar, but no such concern would suggest the Fed is happy for U.S. Treasury yields to ‘find the right level’ … potentially triggering another spike in U.S. yields and more dollar short-covering," ING said in a note to clients.

The Swiss franc and the Japanese yen continued their recent weakness. They have been hurt expectations the U.S. will lead global growth, which some analysts are calling U.S. exceptionalism.

"The traditional (funding currencies) like euro, yen and Swiss, look to be particular laggers in that environment under a higher U.S. yield backdrop," said TD’s Issa.

The franc weakened as far as 0.9253, the lowest since Sept. 28. The yen reached 107.48, its weakest since July 20.

Higher risk currencies, including the Australian dollar, by contrast, are positioned to outperform. The Aussie was last up 0.22% on the day at $0.7792, holding below three-year highs of $0.8007 reached last week.

In the cryptocurrency market, bitcoin fell 1.23% to $49,775. Ether gained 1.06% to $1,583.

Bitcoin has surged 78% so far this year as it gains more acceptance in the financial services industry, but the U.S. financial regulator is likely to start working on guidelines for digital assets, which could increase scrutiny of cryptocurrencies.

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