* Dollar weakens vs most currencies
* Yellen to testify at Senate Finance Committee
* Euro creeps back above $1.21; Aussie jumps
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Tommy Wilkes
LONDON, Jan 19 (Reuters) - The dollar dropped on Tuesday as
investors prepared for U.S. Treasury Secretary nominee Janet
Yellen to talk up the need for major fiscal stimulus and commit
to a market-determined exchange rate when she testifies later in
the day.
The fall in the greenback came after a 2% rise in the dollar
so far in 2021, a gain which caught off guard many investors who
had betted on a further dollar decline following its weakness in
2020.
The dollar has been helped in January by rising U.S.
Treasury yields and some investor caution about the strength of
the global economy recovery from the coronavirus pandemic.
But most analysts are sticking with their calls for a weaker
greenback from here.
"On fiscal policy, Yellen is to suggest that the US "act
big" and make use of the low borrowing costs. On the dollar, it
should be reiterated that the new administration is committed to
the market determined exchange rate. Both are in line with our
weak USD outlook," ING analysts wrote.
President-elect Joe Biden has unveiled plans for a $1.9
trillion fiscal stimulus package.
The Wall Street Journal on Monday reported Yellen, who is
appearing at the Senate Finance Committee, will affirm a more
traditional commitment to market-set currency rates in a Senate
testimony on Tuesday. That is in stark contrast to outgoing President Donald
Trump, who often railed against dollar strength.
The dollar index, which measures the currency against a
basket of rivals, dropped 0.2% to 90.587 =USD , but it was
still above the more than 2-1/2 year low of 89.206 touched at
the start of this month.
With the dollar weakening, the euro gained, rising 0.3% to
$1.2109 EUR=EBS .
More volatile currencies such as the Australian dollar also
capitalised on the weaker U.S. currency, with the Aussie up 0.4%
at $0.7715 AUD=D3 .
Sterling was little changed at $1.3594 GBP=D3 .
The dollar rose against the Japanese currency and was last
up 0.3% to 104.05 yen JPY=EBS , although still consolidating in
a narrow range after reaching a one-month high of 104.40 last
week.
"We've seen comments from Janet Yellen that she won't be
pursuing a weak dollar policy per se, but that doesn't mean that
the overall impact of Fed policy won't keep the dollar
weakening," said Michael McCarthy, chief strategist at CMC
Markets in Sydney.
"I suspect what we've been seeing in the dollar at the
moment is a minor corrective rally in an overall downtrend."
Emerging market currencies rose but were some way off recent
highs.
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World FX rates https://tmsnrt.rs/2RBWI5E
U.S. dollar index https://tmsnrt.rs/38WDnqX
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