By Kate Duguid
NEW YORK, Feb 23 (.) – The dollar rose modestly Tuesday afternoon after US Federal Reserve Chairman Jerome Powell rejected suggestions that ultra-lax monetary policy risks unleashing inflation, while sterling hit a three-year high.
* The increasing likelihood that Congress will pass President Joe Biden’s $ 1.9 trillion stimulus plan has raised concerns about a possible rise in inflation.
* As those expectations have risen, so has the popularity of the so-called reflation trade, which this month has hurt the dollar.
* But in his testimony Tuesday before the Senate Banking Committee, Powell said the central bank would stick with its policies as it shifts attention to getting Americans back to employment.
* “The economy is a long way from our employment and inflation targets, and additional substantial progress will likely take some time,” Powell said.
* Last year, the Fed chief stated that the central bank would be willing to allow inflation to run above its target rate for periods of time to average 2%. Although Powell did not allay fears about inflation, general central bank support for the economy would have kept the dollar afloat.
* The dollar index was at 90.141, up 0.11% on the day, but far from the session highs after the slide after Powell’s words.
* Meanwhile, the British pound hit a nearly three-year high of 1,411, up 0.33% on the day, as investors kept their bets that a swift launch of the COVID-19 vaccine will allow a reopening of the British economy in the coming months.
* Prime Minister Boris Johnson presented a step-by-step plan on Monday to end the current lockdown in Britain.
* Additionally, the euro weakened a low 0.07% to $ 1.215 and the yen, the worst performing currency so far in 2021 among major currencies, was down 0.20% on the day to 105.27 yen. per dollar.
(Reporting by Kate Duguid in New York and Tommy Wilkes in London, Edited in Spanish by Rodrigo Charme and Manuel Farías)