FOREX-Dollar hovers near one-month high as Biden's FX policy takes shape

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Kevin Buckland
TOKYO, Jan 19 (Reuters) - The dollar hovered around its
highest in nearly one month on Tuesday with traders expecting
U.S. Treasury Secretary nominee Janet Yellen to affirm a more
traditional commitment to market-set currency rates when she
testifies at Capitol Hill later.
President-elect Joe Biden's pick to head the Treasury is
prepared to say the United States "doesn't seek a weaker
currency to gain competitive advantage", returning to a more
traditional posture after outgoing President Donald Trump often
railed against dollar strength. Biden is set to be inaugurated on Wednesday.
The greenback has started the year with a near 2% rally
against major peers, supported by a rise U.S. Treasury yields in
response to Biden's plan for a $1.9 trillion pandemic relief
package.
The safe-haven currency fell nearly 7% last year on
expectations U.S. monetary policy would stay ultra-loose and on
hopes for a post-pandemic global recovery.
The greenback has also been helped recently by an unwinding
of bearish bets, with data showing that hedge funds piled up the
biggest net short position since May 2011 in the week ended Jan.
12. Such large positions suggest that traders would be
relatively more inclined to reduce their positions than add to
already big bets.
However, many analysts still expect the currency to
eventually resume its march lower during 2021.
An improving economic outlook under increased fiscal
spending and accelerated vaccinations, along with ultra-easy
monetary policy, will scupper any attempt for a more sustained
rally, Commonwealth Bank of Australia analyst Kim Mundy wrote in
a note.
"Further USD upside this week will be contained," she said.
The dollar index =USD was 0.1% lower at 90.690 in early
Asian trading, after edging as high as 90.94 overnight for the
first time since Dec. 21. Trading was subdued with U.S. markets
shut for Martin Luther King Jr. Day on Monday.
The dollar was little changed at 103.72 yen JPY=EBS ,
consolidating in a narrow range after reaching a one-month high
of 104.40 last week.
The euro rose 0.1% to $1.20855 EUR=EBS , after dipping to
1.2054 on Monday for the first time since Dec. 2.

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