Early trade in New York: dollar adds to gains as Fed's Powell nods to 'gradual' rate hikes

The dollar added to gains against a basket of major currencies on Tuesday after Federal Reserve Chairman Jerome Powell told US lawmakers the central bank would stick with gradual interest rate increases despite the added stimulus of tax cuts and government spending. Powell pledged to "strike a balance" between the risk of an overheating economy and the need to keep growth on track. His congressional testimony was his first public appearance since being sworn in as chairman earlier this month.
Powell is scheduled to present his remarks to a US House of Representatives committee at a hearing scheduled for 10 am EST (1500 GMT), followed by questions from lawmakers. Brad Bechtel, managing director FX at Jefferies, in New York, said Powell's comments were generally positive for the dollar.
"He is hawkish in the context of being very upbeat on the economy but willing to go at a moderate pace to normalize policy," Bechtel said. The dollar index, which measures the greenback against a basket of six other major currencies, was up 0.26 percent at 90.089.
Some of the headwinds the US economy faced in previous years have turned into tailwinds, Powell said, noting recent fiscal policy shifts and the global economic recovery. "That's sort of a big statement if you think about it," said Bechtel.
"He's kind of dialed it up just a notch from where (Powell's predecessor, Janet) Yellen was," Bechtel said. The Fed is expected to approve its first rate increase of 2018 at its next policy meeting in March, when it will also provide fresh economic projections and Powell will hold his first news conference. Fed policymakers anticipate three rate increases this year.
"From a 10,000-foot view, Powell's prepared remarks are common-sense," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. The dollar was up 0.19 percent against the Japanese yen at 107.11 yen. The euro was down 0.26 percent against the dollar at 1.2284.