Dollar edges higher ahead of Powell testimony in busy week

Key Points
  • Powell testimony, central banker speeches keep markets edgy
  • Traders brace for German, Italian political developments
A £10 note is seen alongside euro notes and US dollar bills.
Matt Cardy | Getty Images

The dollar inched higher on Monday in choppy trading ahead of a slew of U.S. economic data and events this week, including Federal Reserve Chairman Jerome Powell's testimony, which could determine whether the greenback's recovery from a three-year low can be sustained.

The prospect of further interest rate increases by the Federal Reserve, more than what the market has initially priced in, has bolstered the dollar in the last few weeks. Concerns about rising inflation after a prolonged period of stagnant price gains have raised the possibility that the Fed could tighten more than expected this year and the next, an expectation that has boosted Treasury yields and lifted the dollar.

Since the dollar index hit a three-year trough more than a week ago, the U.S. currency has risen 1.4 percent and is tracking nearly 1.0 percent in gains for the month of February, after losses of more than 3 percent in January.

The focus this week is Powell's first congressional testimony. Powell will testify on the central bank's semiannual report on monetary policy and the economy on Tuesday before the U.S. House of Representatives Financial Services Committee.

The Week Ahead: New Fed Chair Powell to testify

Investors will be scanning Powell's comments for any signs that the central bank wants to raise rates faster to address inflationary pressures.

"If Powell suggests that the Federal Reserve could raise U.S. interest rates four times in 2018, it could be seen as a positive sign for the U.S. dollar," said Jameel Ahmad, global head of currency strategy and market research at online brokerage FXTM.

The dollar index was up 0.1 percent at 89.964.

This week is also loaded with major U.S. data on consumer confidence, revised fourth-quarter growth, manufacturing and personal income and spending.

Analysts also said investors were cautious about taking big positions this week due to political events in Europe. Italians vote in a national election on Sunday, while the leading political parties in Germany will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor.

Euro zone inflation data due later this week further added to a nervous outlook for euro trading.

European Central Bank President Mario Draghi spoke before the European Parliament on Monday and struck an optimistic tone about the euro zone economy. He said, however, that inflation has yet to show more convincing signs of a sustained upward adjustment.

In late morning trading, the euro was little changed against the dollar at $1.2292. The dollar was also flat versus the yen at 106.90 .