Dollar Was Close to its Highest Level in Several Months

The dollar was close to its highest point in three months versus its rivals on Wednesday as traders took a breather before Fed chair Jerome Powell’s comments a day after data showed U.S. inflation jumping to a 13-year high last month.

The U.S. dollar is likely to take its direction from Fed chair Jerome Powell’s two-day testimony before Congress. Growing short bets on the greenback in the futures markets in recent weeks also made them wary of shorting the dollar aggressively.

Analysts expect that he will try and balance that shift with a cautious tone over proceeding with QE tapering. The increase in infections of the Delta variant is one reason for Powell to highlight the need for caution.

The dollar index dropped 0.1% to 92.67 after earlier rising as high as 92.832. The index that tracks the U.S. dollar against a basket of currencies at one point was below the 92.844 level. It reached 92.888 last week for the first time since April 5.

The U.S. dollar and the New Zealand dollar

The New Zealand dollar was the only currency to strengthen its position against a broadly firm U.S. dollar. The country’s central bank announced an end to its pandemic-era bond purchases, paving the way for an interest rate hike by the end of the year. The Reserve Bank of New Zealand made the decision to cut short a NZ$100 billion ($70 billion) bond-buying program.

The country’s currency rose 1% in early London trading to $0.7017 before settling down to trade 0.8% up on the day. The separation in monetary policy outlook with its Antipodean neighbor saw the Aussie fell 0.7% on the kiwi to NZ$1.0645.

The greenback, meanwhile, retreated marginally from three-month highs hit against the single currency. It declined after data a day earlier showed inflation rose to its highest point in more than a decade.

Against the euro, the greenback strengthened to $1.17720, the highest since April 5, for a second day running, before dropping 0.2% to $1.1795.

Attention turned in the meantime to central banks that are moving forward with their plans to exit pandemic-era stimulus. Another important factor is the fate of economic growth.

Broader currency market sentiment remained on the risk-averse as perceived safe-haven currencies, including the Swiss Franc and yen strengthened their positions. Another safe-haven currency Norwegian krone declined.