Dollar off recent highs as investors look to Fed, Yellen for bond clues

By Hideyuki Sano

TOKYO (Reuters) – The U.S. dollar hovered below recent highs on Tuesday as investors looked to fresh comments from top U.S. policy makers to gauge how far they would allow U.S. bond yields to rise.

The Turkish lira showed some sign of stability following a 7.5% dive on Monday after President Tayyip Erdogan sacked a hawkish central bank chief.

The dollar traded at 108.81 yen, having lost a bit of steam after it had hit a nine-month peak of 109.365 last week. The euro stood at $1.1934, having bounced off a two-week low of $1.1870 on Monday.

The dollar’s index against a basket of six major currencies slipped 0.32% on Monday and stood almost flat in early Asian trade at 91.815.

The index has gained 2.0% so far this quarter, as speedy rollouts of COVID-19 vaccines in the United States and the Biden Administration’s $1.9 stimulus are seen lifting the country’s economic growth, helping to drive up U.S. bond yields and drawing investors to the dollar.

The dollar’s attraction was further boosted as U.S. Federal Reserve officials appeared to tolerate rises in bond yields in recent weeks.

“U.S. bond yields could rise further as the market may try to find out where the pain threshold for the Fed is,” said Minori Uchida, chief currency analyst at MUFG Bank.

The immediate focus is on the Congressional testimony by Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen later today.

For now, though, the 10-year U.S. bond yields eased to 1.684% after peaking at 1.754% on Thursday, keeping the dollar in check.

“The market is interested in how far U.S. bond yields will rise. While top Fed officials have said they will keep interest rates low through 2023, there could be dissenting voices,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Turkish lira traded at 7.7980 per dollar after a steep fall on Monday to as low as 8.485, near its record low of 8.58.

The lira’s massive fall, however, did little to shake investors’ confidence in emerging market currencies as the event, the third firing of a central bank chief by Erdogan since 2019, was not perceived to hold wider risk.

The MSCI emerging market currency index dipped only slightly on Monday.

Bitcoin stood at $54,549, having fallen almost 5% on Monday to trade near last week’s low of $53,221.