By Sara Sjolin, MarketWatch
Pound drops ahead of May's Friday speech
The dollar rose against all other major currencies on Thursday, with a key dollar index climbing for a third straight day.
Traders were looking ahead to Federal Reserve Chairman Jerome Powell's return to Capitol Hill, in anticipation of fresh hints to the future of interest rates.
The pound and euro both lost ground on political jitters. Sterling fell as uncertainty over Brexit revived, while traders were backing out of the shared European currency ahead of the Italian election and result of the German coalition vote on Sunday.
What are currencies doing?
The ICE U.S. Dollar Index rose 0.1% to 90.717, trading around its highest level in more than a month. The gauge rose 1.7% over February. That marked the greenback's first positive month since October and its best monthly performance since last February.
The euro dropped to a more-than one-month low of $1.2175, from $1.2194 late Wednesday in New York.
The pound bought $1.3747, down from $1.3761.
The dollar also advanced marginally against the yen , buying Yen106.69, compared with Yen106.67 on Wednesday.
What is driving the market?
The dollar has been rising since Tuesday, when new Fed chief Jerome Powell sounded upbeat on the U.S. economy in his maiden testimony on Capitol Hill, interpreted as a hawkish tone. That sparked speculation the central bank could raise interest rates four times this year, and not three times as previously indicated.
Investors will get a chance to hear more from Powell on Thursday, when he testifies before the Senate Banking Committee at 10 a.m. Eastern Time.
The pound declined as traders looked ahead to Friday's speech by U.K. Prime Minister Theresa May, when she is expected to lay out her vision of the U.K.'s post-Brexit relationship with the European Union.
London-Brussels relations have taken a frosty turn, after May flat-out rejected the EU draft version of the Brexit treaty released on Wednesday. The British leader may take a hard line on the withdrawal in response, and that could whack the pound, analysts said.
A headache may also be brewing for euro traders. On Sunday, Italians vote in a general election that may well prove a success for populist, euroskeptic parties -- which has the potential to upend financial markets and spark political turmoil.
On the same day, Germany's Social Democratic Party will reveal whether its members have voted to form a grand coalition with Chancellor Angela Merkel's Christian Democratic Union, possibly bringing in a government after five months of uncertainty.
What else could move markets?
Economic data reports due later may also drive the dollar, particularly the core inflation report, known as the PCE deflator, which is the Fed's preferred gauge when measuring inflation. That report is due out at 8:30 a.m. Eastern Time, along with personal-income and consumer-spending numbers.
A reading on weekly jobless claims is expected at 8:30 a.m. as well, followed by two reports on manufacturing activity and a report on construction spending.
What are strategists saying?
-- "Wage growth and inflation growth are absolute keys to dollar strength, as they will confirm Fed's hawkish stance, so any upside surprises in today's data could propel USDJPY through the 107.00 figure and set it on a path towards 108.00," said Boris Schlossberg, managing director of FX strategy at BK Asset Management, in a note.
-- "There has been a real negative shift in market sentiment since the Jerome Powell testimony a couple of days ago. Powell's belief that inflation is heading higher and that the FOMC would need to reassess its dot plot expectations at the next meeting have worried markets," said Richard Perry, analyst at Hantec Markets, in a note.
"Shorter-term rate expectations have risen [but] the longer end is not moving as much. This risk reduction is driving a stronger dollar but also yen strength too. Powell speaks again before the Senate Banking Committee today, so it will be interesting to see if he dials back at all, considering the market reaction," he added.