Dollar Pares Gain From February High Ahead of Yellen Testimony

Updated on
  • Market awaits Fed Chair’s view on timing, number of hikes
  • Dollar-yen touches highest since Jan. 30 as Abe, Trump skip FX

RBC’s Porcelli Says Change Is Coming at the Fed

The dollar retreated from its strongest level of the month Monday while Treasuries pared losses as markets awaited Fed chair Janet Yellen’s testimony to Congress Tuesday for hints about the path of interest rates.

The dollar was in modest demand as stocks rose to a record in the U.S. and as expectations for fiscal stimulus remained elevated after President Trump last week said there will be a “phenomenal” tax package announced in coming weeks. Trading flows were modest Monday as traders kept their powder dry ahead of Yellen, who’s set to begin speaking at 10:00 am ET.

While the dollar was trading near its February high, the euro was trading at a more than one-month low as measured by the Bloomberg euro index.

With the Fed still on track to raise rates two or three times this year, the dollar remains attractive, traders say, though there’s still some caution about building longs given the risk that Trump may talk the currency down. With Treasury Secretary-nominee Mnuchin continuing to await confirmation, Trump has been the primary administration voice on the dollar.

Bloomberg dollar index was up ~0.15% after rising more than 0.3% earlier, with the dollar gaining against most G-10 peers. The market prices the odds of a March rate hike at ~30% and traders will eye remarks from the Fed chair for additional guidance on the outlook for rates and the economy.

  • USD/JPY trading ~113.67 after a retreat from session high at 114.17, where offers capped; pair struggled to gain foothold over 114.00 in U.S. hours
  • Pair is supported by rise in Treasury yields and also by U.S. stocks; pair was also supported by demand for GBP/JPY early in the day, said a trader in London who asked not to be identified because not authorized to speak publicly
  • Offers from Japanese exporters are layered above 114.20 and may slow USD gains, other traders said
  • EUR/USD traded to a fresh low at 1.0592 as bids ahead of 1.0600 were filled; further bids are scattered down to 1.0580, though traders caution that there also stop-loss sell orders mixed in, to potentially make for choppy trading
  • EUR may find tech support at 1.0580 from the Jan. 16 low, a breach may open drop toward the Jan. 11 low at 1.0454
  • GBP/USD held ~1.2525, one of only 2 gainers vs USD in the session, as traders balanced the still uncertain Brexit outlook against the growing possibility of rate hikes in the U.K. later this year; GBP may find offers at 1.2575, above the session high at 1.2539, a trader in London said
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