Dollar Stuck

On Tuesday, the US dollar remained near the middle of its recent range against major peers. Traders awaited the nomination hearing of incumbent Fed Chair Jerome Powell later in the day for new clues on the timing and pace of policy normalization.

Late in the Asian session, the dollar index, which compares the currency to six others, hovered around 95.86. It reached a more than 16-month high of 96.938 on Nov. 24 amid increasing hawkishness from Fed policymakers.

According to TD Securities strategists, the Fed appears to be thinking “sooner rather than later” for both higher rates and running off its balance sheet after ending bond-buying stimulus – a process known as quantitative tightening (QT).

In a research note, they wrote, An affirmation of March tightening and early QT should support USD firmness overall, though within well-established ranges. TD expects the first rate hike in June but said it could happen as early as March.

Money markets anticipate an increase by May, followed by two more by November.

Currencies

Ten-year US Treasury yields rose to a nearly two-year high above 1.8 percent overnight. However, they provided only tepid support for the dollar.

After bouncing off a one-week low of 115.045 on Monday, the dollar changed to 115.26 yen. The euro was roughly flat at $1.1341, having stuck in the middle of its trading range since mid-November.

The failure of the USD to rally despite a growing relative premium of US bond yields over other G10 economies has many wondering what will need to happen to drive the USD higher.

The euro-dollar direction will determine by a closing break on either side of its recent $1.1380 to $1.1270 trading channel.

On Monday, the sterling was steady at $1.3594, falling from a two-month high of $1.36025.

The Australian dollar rose 0.19 percent to $0.7188, boosted by local retail sales data that came in much higher than economists predicted.