Dollar hangs on as currency market waits for Powell

By Tom Westbrook

SINGAPORE (Reuters) – The dollar held firm on Tuesday, shrugging off selling pressure from a move higher in equities, as investors seemed to temper their bearish bets against the greenback ahead of a Thursday speech from U.S. Federal Reserve Chair Jerome Powell.

The dollar, which often falls when stocks rise as investors seek out riskier currencies, had inched higher overnight -repelling the Australian dollar back under 72 U.S. cents and pushing the euro below $1.18.

It hung on to those gains early in the Asia session and the Aussie last traded at $0.7162 and the euro (EUR=EBS) at $1.1791. It was steady on the yen at 105.97 per dollar.

Fed Chair Powell on Thursday addresses a virtual Jackson Hole symposium with the theme “Navigating the Decade Ahead: Implications for monetary policy.” Investors expect he might address the bank’s strategy – especially its 2% inflation target, with speculation that could become an average rather than nominal aim.

“If we don’t get dovishness, I expect you might actually get rates rising and pop up higher in the U.S. dollar,” said Westpac FX analyst Imre Speizer.

“The dollar has had a massive fall since March,” he said. “I think what we’re seeing now is any excuse to buy it back as the punters who have been short all the way down get quite nervous and take the money off the table.”

A small overnight rise in yields also supported the dollar and against a basket of currencies (=USD) it held the line at 93.282, about 1.3% higher than a two-year trough it hit a week ago.

It is about 9.4% below its March peak, though there are signs its decline is slowing as it is broadly steady in August. Net bets against the dollar eased from a nine-year high last week and the U.S. currency has made ground broadly in recent days.

Sterling was pressured back below $1.31 to last fetch $1.3071, and not helping was lack of progress in the latest round of Brexit talks with the European Union.

The oil-sensitive Canadian dollar fell about 0.3% overnight to 1.3238 per U.S. dollar, even though oil prices rose. The New Zealand dollar has been unable to trade above 66 cents for a week and last sat at $0.6524.

Elsewhere the Indian rupee had on Monday jumped nearly 1% to a five-month high as traders were surprised by the absence of central bank dollar buying.

Besides Powell’s speech, investors are also looking ahead to Germany’s IFO Business Climate index, due at 0800 GMT, and expecting a small rise.

U.S. August consumer confidence figures are also due at 1400 GMT and another small rise is expected. Softer-than-forecast data on both continents last week suggests there is downside risk on the data, which could send the euro in either direction.

“We expect more consolidation in euro/dollar this week because of early signs the Eurozone economic recovery is losing momentum,” said Commonwealth Bank of Australia (OTC:CMWAY) currency analyst Kim Mundy in a note.

“Rising coronavirus infections in some European countries is a key downside risk to the Eurozone’s growth outlook.”