Broker of the Week Oanda - Read Full Review

Free Top Brokers Comparison Service


Why dollar bears aren’t afraid of Janet Yellen


It’s all about how you say it.

Dollar bears didn’t scurry for cover Tuesday when Janet Yellen, former Fed chair and President-elect Joe Biden’s pick to serve as Treasury secretary, said the incoming administration won’t seek a weaker currency in a bid to gain an advantage on U.S. competitors.

That’s because Yellen couched the remarks in a way that did nothing to change expectations for more dollar weakness nor gave the impression that she sees anything wrong with the dollar’s recent slide.

In testimony before the Senate Finance Committee in her confirmation hearing Tuesday, Yellen said the U.S. “does not seek a weaker currency to gain competitive advantage.”

Live blog: Yellen champions Biden’s economic plan at confirmation hearing

She prefaced those remarks by declaring she believes “in market-determined exchange rates” and that she would oppose “any and all” attempts by foreign countries to artificially manipulate currency values.

Dollar bears see the currency’s weakness as certainly justified by economic fundamentals, including a Federal Reserve that is committed to letting the economy run hot before tightening policy and the incoming Biden administration’s desire to “act big” on fiscal stimulus, in Yellen’s words, in an effort to lift the COVID-19-ravaged economy.

Indeed, the remarks did nothing to change already bearish expectations for the dollar, said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.

“We expect pro-cyclical currencies like the euro
commodity-producer currencies, and the British pound
to benefit from a broadening economic recovery supported by vaccine rollouts,” he said.

“In Asia, we think high-yielding currencies such as the Chinese yuan
the Indonesian rupiah
and the Indian rupee
also will be in demand. Laggards like the Singapore dollar
should catch up, and the tourism-reliant Thai baht
will benefit from an eventual resumption of global travel as vaccine rollouts continue,” he said.

The dollar fell sharply versus major rivals in 2020 and extended losses into the new year, with the ICE U.S. Dollar Index
trading at its lowest since April 2018, before bouncing modestly. The dollar was under renewed pressure Monday, with the index down 0.4%.

The euro, the most heavily weighted component in the index, jumped 0.4%.

A weaker dollar, which contributes to looser financial conditions, is generally seen as a positive for a global economy coming out of the shock caused by the COVID-19 pandemic.

While no administration has formally scrapped the “strong dollar policy” adopted by Treasury Secretary Robert Rubin during the Clinton administration, a weaker dollar has often been tacitly welcomed. President Donald Trump often was the most hostile to a stronger currency, even getting into something of a long-distance argument with then-European Central Bank President Mario Draghi in 2019 over what Trump saw as an effort to weaken the euro.

Broadly speaking, “a strong exchange rate is not welcome when inflation is low and the labor market weak,” noted Jane Foley, senior FX strategist at Rabobank. “In view of the Fed’s recent readjust of its policy framework to allow inflation to average 2%, it seems unlikely that Yellen will be minded to underpin the strong dollar policy rhetoric.”


Source link

We will be happy to hear your thoughts

      Leave a reply

      Trading foreign exchange on margin carries a HIGH LEVEL OF RISK, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.

      Advertiser Disclosure: helps investors across the globe by spending over hours each month testing and researching online brokers.

      How do we make money? Our partners compensate us through paid advertising.

      While partners may pay to provide offers or be featured, e.g. exclusive offers, they cannot pay to alter our recommendations, advice, ratings, or any other content throughout the site.

      Furthermore, our content and research teams do not participate in any advertising planning nor are they permitted access to advertising campaign data.

      Disclaimer: It is our organization’s primary mission to provide reviews, commentary, and analysis that are unbiased and objective.

      While has some data verified by industry participants, it can vary from time to time.

      Operating as an online business, this site may be compensated through third-party advertisers.

      Our receipt of such compensation shall not be construed as an endorsement or recommendation by, nor shall it bias our reviews, analysis, and opinions.

      Best Forex Brokers Reviews
      Reset Password
      Compare items
      • Total (0)