TOKYO- The US dollar hovered near the middle of its recent range against major peers on Tuesday as traders looked to incumbent Fed Chair Jerome Powell’s nomination hearing later in the day for new clues on the timing and pace of policy normalization.
In his prepared opening remarks, released Monday, Powell will pledge to prevent high inflation from becoming “entrenched,” but will make no mention of plans for the path of monetary policy.
However, he will take questions from senators in his bid for a second four-year term.
The dollar index, which measures the currency against six counterparts, hovered around 95.93 early in the Asian session.
It hit a more than 16-month high of 96.938 on Nov. 24 amid increasing hawkishness from Fed policy makers, but has since been stuck between that level and 95.544, touched less than a week later, despite a continued ramping up of rhetoric that now has Wall Street banks forecasting four quarter-point rate hikes this year.
TD Securities strategists said it seemed the Fed was of the mindset of “sooner rather than later” for both higher rates and running off its balance sheet after ending bond-buying stimulus – a process dubbed quantitative tightening (QT).
“An affirmation of March tightening and early QT should support USD firmness overall, though within well-established ranges,” they wrote in a research note.
TD expects a first hike in June, but as early as March was also a possibility.
