Dollar slides as investors look to Yellen comments on stimulus

NEW YORK: The dollar dropped for a second straight session on Tuesday, with broader risk appetite turning more positive, as investors prepared for US Treasury Secretary nominee Janet Yellen to talk up the need for major fiscal stimulus and commit to a market-determined exchange rate.

The dollar's fall came after a 2% rise so far in 2021, a gain which caught off guard many investors who had bet on a further decline following its weakness in 2020.

The dollar has been helped in January by rising US Treasury yields and some investor caution about the strength of the global economic recovery from the coronavirus pandemic. But most analysts are sticking with their calls for a weaker dollar from here.

Yellen is expected to appear before the Senate Finance Committee later on Tuesday.

"Investors were clearly upbeat about the prospect of President-elect (Joe) Biden's $1.9 trillion dollar stimulus proposal," said Boris Schlossberg, managing director, at BK Asset Management in New York.

He expects Yellen, who returns to government as Treasury Secretary after a stint as Federal Reserve chair, to have a very smooth confirmation hearing in which "she is likely to encourage lawmakers to pass the proposed package given the low level of interest rates."

The Wall Street Journal on Monday reported Yellen will affirm a more conventional commitment to market-set currency rates in her Senate testimony on Tuesday.

That contrasts with outgoing President Donald Trump, who often railed against dollar strength.

The dollar index, which measures the currency against a basket of other currencies, dropped 0.3% to 90.481, but it was still above its more than two-and-a-half-year low of 89.206 touched at the start of this month.

With the dollar weakening, the euro gained, rising 0.5% to $1.2134.

The single currency was unaffected by Italian Prime Minister Giuseppe Conte's facing a confidence vote to stay in office. The result of the vote is due after 1800 GMT.

More volatile and commodity-linked currencies, such as the Australian dollar, also benefited from the weaker US currency, with the Aussie up 0.4% at $0.7712.

Rising commodity prices in recent months have boosted currencies of countries with large commodity exports, such as Australia and Canada.

"We continue to see scope for further gains in commodity-related currencies in the year ahead, which should benefit as well from the strengthening global recovery once vaccines are rolled out more widely," said Lee Hardman, an analyst at MUFG.

Sterling rose 0.2% against the dollar to $1.3610.

The dollar rose 0.2% against the yen to 103.93 yen, although still consolidating in a narrow range after reaching a one-month high of 104.40 last week.

Emerging-market currencies were mostly higher but weere some way off recent highs.