Fed’s Powell and lower US Treasury yields keep the greenback on the defensive

The dollar is back under the selling pressure on Tuesday despite the renewed risk-off tone in the global financial markets as the US Treasury yields extend the decline amid increasing concerns over the recently discovered omicron variant of the coronavirus against the backdrop of the already increasing COVID cases.

As such, the USD index slipped back below the 96.00 figure to leave behind yesterday’s recovery attempts. The pressure surrounding the greenback intensified after Fed’s Powell said the new coronavirus variant could dent the recovery in economic activity and employment. Later today, Powell will testify on the Coronavirus and CARES Act before the Senate Committee on Banking, Housing, and Urban Affairs.

Meanwhile, the safe-haven yen demand persists, pushing the USDJPY pair lower on Tuesday. The prices have been losing ground for the fourth session in a row to derail the 113.00 figure in recent trading. The greenback dipped to nearly three-week lows around 112.75 and was clinging to the lower end of the extended trading range during the European hours. Should the downside pressure keep intensifying in the near term, a break below 112.70 would pave the way towards October 11 lows.

As for the common currency, EURUSD regained the 1.1300 figure to extend gains to the 1.1360 area, now targeting the descending 20-DMA, followed by the 1.1400 level. The technical picture suggests there is room for further gains in the short term, and the upcoming testament by Powell could add to the selling pressure surrounding the American currency.

However, the bearish potential in the greenback still looks limited, with the broader uptrend staying intact for the time being. The reversal could take place if the Fed softens its tone to cool down expectations for an earlier hike in interest rates amid the spread of the new coronavirus variant.  


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