Forex Today: Dollar retreats alongside yields as focus shifts to Powell hearing

Here is what you need to know on Tuesday, January 11:

With the benchmark 10-year US Treasury bond yield erasing its daily gains after failing to break above 1.8% on Monday, the US Dollar Index lost its traction in the second half of the day. Major currency pairs trade in familiar ranges early Tuesday as investors remain on the sidelines as FOMC Chairman Jerome Powell heads to Senate for his nomination hearing. The NFIB Business Optimism Index for December and the IBD/TIPP Economic Optimism Index for January will be featured in the US economic docket as well.

According to his prepared remarks, Powell will reiterate that the Fed will aim to stop higher inflation from getting trenched while delivering his opening statement. He will also note that the economy has rapidly gained strength despite the ongoing pandemic and explain that this has been giving rise to elevated inflation.

Market participants will look for fresh hints about the timing of the rate hike and the possibility of the Fed using quantitative tightening to ease price pressures. The reaction in US T-bond yields to Powell's comments could impact the dollar's valuation in the American trading hours.

Meanwhile, Wall Street's main indexes closed little changed on Monday and the US stock index futures trade flat early Tuesday.

EUR/USD closed in the negative territory on Monday but managed to hold above 1.1300. The pair was last seen posting small daily gains slightly below 1.1350. European Central Bank President Christine Lagarde is scheduled to deliver a speech at 1020 GMT.

GBP/USD fell to a daily low of 1.3532 but erased the majority of its daily losses before closing at 1.3575 on Monday. The pair is inching closer to 1.3600 in the early European session. 

USD/JPY came under heavy bearish pressure on retreating US T-bond yields late Monday and closed the third straight day in the negative territory. The pair is trading within a touching distance of 115.00.

Gold climbed above the key $1,800 resistance earlier in the day and continues to push higher toward $1,810. The yellow metal remains at the mercy of US T-bond yields.

Bitcoin dipped below $40,000 for the first time since late September on Monday but recovered to $42,000 area. Ethereum tested $3,000 but buyers managed to defend this level so far.