US Dollar Restricted in Sideways Bias as Trader Look Ahead to Powell’s Hearing

The US dollar index (DXY) maintained a sideways bias in the early trading session on Tuesday as traders remained on the sidelines ahead of incumbent Fed Chair Jerome Powell’s nomination hearing later today, for clues on possible price breakouts.

In his released opening remarks published yesterday, Powell would pledge to curtail excessive inflation from “becoming entrenched” but would not talk about the Fed’s monetary policy plans.

That said, Powell will take questions from senators as he plans to contest for a second four-year term under the Biden administration.

US Dollar Steady Despite Hawkish Fed Stance

The DXY, which tracks the dollar’s performance against six counterparts, traded around 95.80 (press time data) in the early London session on Tuesday.

 

The greenback hit a 16-month peak of 96.93 on November 24 amid a hawkish stance by US policymakers but has since fallen into a sideways pattern between 96.70 and 95.60, despite the growing possibility of a four-quarter rate hike this year.

Meanwhile, strategists at TD Securities argued that it appears that the Fed could be in a “sooner rather than later” mood for both interest rate hikes and tapering its bond exposure on its balance sheet, a process they dubbed quantitative tightening (QT). The strategists wrote that:

“An affirmation of March tightening and early QT should support USD firmness overall, though within well-established ranges.”

TD strategists expect the first rate hike in June, although said it could come as early as March. That said, money markets have already priced in an increase by May, with two more by November.

In other news, US December consumer inflation data will drop tomorrow, with the CPI data expected to drop at a massive 7% YoY, further increasing the possibility of an early rate hike.