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LONDON: The dollar rebounded off six-week lows on Tuesday as investors’ focus shifted to how US Federal Reserve chief Jerome Powell might respond to resurgent inflation expectations, while commodity-linked currencies hovered near multi-year highs.

The recent rise in inflation expectations as investors bet on a post-pandemic economic recovery and the so-called “reflation” trade has lifted US government bond yields. That had fed through to a higher dollar until earlier this month when the greenback resumed its decline.

Analysts expect Powell, who testifies before Congress at 1500 GMT, to provide some reassurance that the Fed will tolerate higher inflation without rushing to raise rates. That might calm bond markets and eventually weigh on the dollar, they said.

“Mr. Powell will very likely reiterate that the Fed is a long way from meeting its goals and that it will likely take some time before “sufficient progress” has been made to taper its bond purchase program,” UniCredit analysts said.

The dollar index was last at 90.143, up 0.1% on the day, having earlier fallen to 89.941, its weakest since Jan. 13.

Positioning data shows investors overwhelmingly betting that a US dollar, which has been dropping since last March, will keep falling as the world recovers from the COVID-19 pandemic.

“Only when the spike in US yields becomes more disorderly and spills forcefully into risk assets, would US dollar experience an across-the-board strength,” said ING analysts in a research note.

The euro weakened 0.1% to $1.2151. Euro zone government bond yields have also been rising but the rally took a brief pause after European Central Bank President Christine Lagarde said on Monday the bank was “closely monitoring” rising borrowing costs.

Commodity-linked currencies have been among the best performers in 2021. Surging prices for materials from oil and copper to lumber and milk powder have pushed currencies such as the Canadian, Australian and New Zealand dollars to their highest in roughly three years.

On Tuesday, the Aussie traded down 0.2% at $0.7903 having earlier hit a high of $0.7934. The New Zealand dollar was down marginally while the Canadian dollar was just below its Monday high.

Sterling hit a new nearly three-year high of $1.4098 , up 0.3% on the day, as investors stuck with their bets that a rapid rollout of the COVID-19 vaccine would allow the British economy to reopen over the next few months.

Prime Minister Boris Johnson laid out his step-by-step plan for ending the current British lockdown on Monday.

Bitcoin, the world’s biggest cryptocurrency, fell sharply below $45,000 and was last down 15% at $45,953, extending its drop from a record set on Sunday of $58,354 as investors grow nervous about sky-high valuations.

The Japanese yen, the worst performing major currency of 2021 because rising US Treasury yields can lure investment from Japan, fell again. The dollar was last up 0.2% at 105.26 yen per dollar.