Forex Today: Fed Powell put the dollar in sell-off mode ahead of US inflation data

What you need to know on Tuesday, January 12:

The dollar fell sharply on Tuesday, following comments from US Federal Reserve chief Jerome Powell. In the hearings before the Senate amid his nomination for a second term, the leader of the US central bank mixed a hawkish view of the economy with a cautious approach to the reduction of the balance sheet.

 Powell noted that the economy is growing at its fastest rate in years, while the labour market is "robust." Also, he said the Fed would stop higher inflation from getting entrenched, cooling down the market's concerns. At the same time, he said that the balance sheet runoff could happen "perhaps later in the year," cooling expectations for an aggressive tapering.

Meanwhile, US Fed Vice-Chair Richard Clarida stepped down on Monday after failing to report stocks' trading just a few days before the Fed announced emergency financial measures to shore up markets in the middle of the coronavirus pandemic. Fed vice-chair said his failure to report those trades was the result of "inadvertent errors."

Wall Street advanced on relief, with the three major indexes holding on to gains ahead of the close. US government bond yields eased as the yield on the 10-year Treasury note retreated to 1.75%.

The EUR/USD pair advanced to 1.1374, holding nearby as the day comes to an end, while GBP/USD trades at 1.3625, its highest since November.

Safe-haven currencies advanced modestly against the greenback, with USD/JPY now trading at 115.40. Commodity-linked currencies strengthened, with AUD/USD trading at 0.7210 and USD/CAD down to 1.2570.

Gold is up to $1,820 a troy ounce, while crude oil prices also got a boost from a weaker dollar, with WTI currently trading at $81.40 a barrel.

The focus now shifts to US inflation figures. The country will publish on Wednesday the December Consumer Price Index, foreseen at 7% YoY.

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