Greenback continues to reap the benefits of rising yields on US government bonds.
The USD index is trading near 91.2 points, which is about 1.6% above the seven-week low reached last Thursday at 89.7 points.
Additional support for the dollar is provided by the weak US stock market, which has suffered losses for the third day in a row.
The sell-off in Treasuries was fueled by fears that huge government spending amid a fast recovery in the US economy will push inflation above the Fed's target, which in turn will force the Central Bank to normalize monetary policy sooner than expected.
Federal Reserve officials are trying to allay these concerns. They continue to argue that tens of millions of Americans are left without work, and it is this, and not the rise in inflationary expectations, that now determines the policy of the regulator.
Fed Chairman Jerome Powell will give a speech on Thursday at a webinar hosted by the Wall Street Journal.
Investors are eagerly awaiting the opinion of the head of the US Central Bank regarding the recent turbulence in the US debt market.
Last week, Powell said that the rise in Treasury yields reflects the favorable outlook for the US economy. He also brushed aside concerns about inflation, calling its rise temporary and noting that a steady rise in prices should be expected only in the next three years. His colleagues made similar comments, apart from Lael Brainard, who said on Tuesday that the dynamics of the bond market last week caught her attention.
If Powell also pays attention to the growing yields on US government bonds, this may negatively affect the dollar rate and support stock indices.
If the head of the Federal Reserve does not add anything new to his previous statements, the decline in stock indices and the strengthening of the dollar will continue to gain momentum.
In any case, Powell will try once again to convince market participants that the Fed is ready to maintain a stimulating monetary policy for a longer period.
At the same time, it is obvious that the time has not yet come for the direct adoption of measures by the Central Bank. However, at first, a powerful verbal intervention from the leadership of the Federal Reserve will be enough.
Such comments should help reduce volatility in the bond market and dampen the USD bullish momentum.
The greenback will face another test this week with the release of the US monthly labor market report on Friday.
According to the ADP, the US economy created 117,000 new jobs in February, which is significantly less than the forecast of 177,000. The component of employment in the US non-manufacturing sector from ISM last month fell to 52.7 points from 55.2 points in January.
The EUR/USD pair remains under pressure amid the strengthening of the dollar following the Treasury yield.
The euro bulls can only pin their hopes on Powell's speech, whose comments can weaken the dollar.
The single currency could also strengthen if Friday's payrolls disappoint market participants.
The eurozone data released on Thursday showed that retail sales in the region fell 5.9% month-on-month in January, much worse than expected, while the annual rate was -6.4%, which is also not in line with the market forecast and puts pressure on the euro.
On the technical side, the important resistance line for EUR/USD is still around 1.2110. A break above this line will bring the levels 1.2150 and 1.2200 into play.
Support is marked at 1.2020, 1.1990, and 1.1950.
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