By Peter Nurse
Investing.com - The dollar edged lower in early European trade Tuesday, with the focus turning to the testimony of U.S. Secretary of the Treasury nominee Janet Yellen on Capitol Hill later in the day.
At 4:05 AM ET (0805 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 90.547, after edging as high as 90.94 overnight for the first time since Dec. 21, although trading was subdued with U.S. markets on holiday.
USD/JPY was up 0.4% at 104.06, EUR/USD rose 0.2% to 1.2096, GBP/USD climbed 0.1% to 1.3597, while the risk-sensitive AUD/USD was up 0.4% at 0.7711.
Janet Yellen steps into a new role Tuesday, as a salesperson for U.S. economic policy after years of defending Federal Reserve actions. She is expected to outline the need for President-elect Joe Biden’s proposed $1.9 trillion Covid relief package, saying the government must “act big.”
She is also expected to be asked about the incoming administration’s stance on the currency, after outgoing President Donald Trump often railed against dollar strength.
“Our best guess would be that she would reply along the lines of believing in a strong dollar policy, but exchange rates should be best set by the market,” said analysts at ING, in a research note. “We doubt the dollar needs to rally much on these remarks.”
The U.S. currency rallied nearly 2% against major peers since the start of the year, rebounding from sharp losses at the end of 2020 as U.S. Treasury yields rose in response to Biden's plan for a hefty pandemic relief package.
These gains may not last too much longer as U.S. monetary policy is likely to still stay ultra-loose for some time, with the central bank's top management playing down suggestions of 'tapering' its bond purchases before next year.
However, for now there is an abundance of risk events scheduled for the week that will ensure traders remain wary of abandoning the dollar safe haven at this point.
There are concerns about possible civil unrest at Biden’s inauguration on Wednesday, as well as during the impeachment trial of President Donald Trump. Additionally, Thursday sees central bank meetings from the Bank of Japan and the European Central Bank.