Nov 23, 2021 03:02AM ET
By: AnalysisWatch
The dollar gave back some of its gains from the previous day on Tuesday but remained near a fresh four-and-a-half-year high against the yen after Jerome Powell was nominated for a second term as Federal Reserve chairman.
At 2:55 AM ET (0755 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 96.442, just below levels last recorded in June 2020.
The USD/JPY fell 0.1% to 114.80, after earlier climbing to 115.15, its highest level since March 2017.
The dollar was buoyed by President Joe Biden's decision to nominate Powell for a second term at the Fed's helm in place of Lael Brainard, who was seen as the more dovish of the two and was instead promoted to Fed vice-chair.
Powell's nomination must now be confirmed by the Senate, but the move has strengthened market expectations of rate hikes in 2022 when the Fed is expected to have completed its asset reduction program.
This caused two-year US government bond yields to rise sharply to 0.64%, the highest level since early March 2020, before falling back slightly to 0.63%.
Elsewhere, EUR/USD rose 0.1% to 1.1250, recovering slightly after falling as low as 1.1226, a fresh 16-month low.
The (Fed) news cements the main trend in EUR/USD, which is that the Fed is preparing to normalize monetary policy while the ECB will lag behind. The ECB had more reason to delay anyway, as Eurozone inflation was expected to fall much faster than US inflation in 2022, but the renewed closures and pressure on the services sector in Europe now give the ECB much more reason to act slowly.
Further evidence of the slowdown in Eurozone activity is likely to emerge later in the session from the preliminary November PMI data for the region.
Despite all this, there was a notable shift in the ECB's rhetoric early on Tuesday when Isabel Schnabel became the first member of the Executive Board to warn that inflation risks are now tilted to the upside.
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