Dollar Flat; Powell Testimony in Focus © Reuters.

By Peter Nurse

Investing.com - The dollar was largely unchanged in early European trading Tuesday, after earlier falling to a near six-week low ahead of Federal Reserve Chairman Jerome Powell’s semi-annual testimony to Congress.

At 3:55 AM ET (0755 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.01% at 90.002.

EUR/USD rose 0.2% to 1.2174, USD/JPY was up 0.1% at 105.14, while the risk-sensitive AUD/USD rose 0.1% to 0.7917, climbing to the highest level in almost three years as commodity prices have soared.

These gains have triggered worries of a global rise in inflation, and puts the focus on Fed chief Jerome Powell, who testifies before Congress later in the day.

He is expected to provide assurance that the Fed will not respond to higher inflation with an immediate rate hike, which could potentially cause the dollar to drop further.

“His challenge will be to express confidence in the recovery, but not too much confidence such that the bond market slide turns into a collapse,” said analysts at ING, in a research note.

“Typically, the Fed finds the right words on these occasions – most certainly downplaying the forthcoming rise in inflation into 2Q – such that the bond market decline can probably stay orderly.”

Elsewhere, GBP/USD was up 0.2% at 1.4083, up almost 3% this month as the U.K. has impressed with its Covid-19 vaccine program, in turn boosting confidence in a U.K. economic recovery.

Britain's unemployment rate rose to 5.1% in the last three months of 2020, its highest since the first quarter of 2016, official data showed Tuesday. That said, separate data from the Office for National Statistics showed that the number of employees on company payrolls in January rose by 83,000 from December.

On Monday, U.K. Prime Minister Boris Johnson set out his aim to ease lockdown rules in a series of stages over the next four months.

“The switch from Brexit-related uncertainty to the vaccine rollout-related upside to the UK growth outlook argues for more frequent periods of GBP valuation overshoots,” ING added.

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