The New Perspective of USD – Now & Future

With Joe Bidens administration most investors are swaying towards a boost in the USD, but his pick for Treasury secretary has just started a bearish curve. The dollar is heading for its longest losing streak in a month as Biden is set to start his presidency, Wednesday.

The Bloomberg Dollar Spot Index has fallen every day this week, as Janet Yellens testimony to the Senate caused an enduring era of low interest rates and the need for giant spending.

That has reversed a rebound in the dollar at the start of the year, which was making many investors nervous given shorting the currency was one of the most popular trades for 2021.

Markets have taken Yellens comments as a green light to bet against the dollar again.

“Although the Biden administration may not specifically seek a weaker dollar, further depreciation is likely,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, citing a dovish Federal Reserve, more fiscal stimulus and investors unwinding exposure to U.S. assets accumulated over the last decade.

“We expect pro-cyclical currencies like the euro, commodity-producer currencies and the British pound to benefit.”

Those currencies were among the biggest gainers on Wednesday, led by the Australian dollar, with sterling touching its highest since May 2018.

That resumed a trend that saw the dollar gauge slide more than 5% last year.

Hedge funds already boosted net dollar short positions to the highest in nearly three years in the week to Jan. 12, according to data from the Commodity Futures Trading Commission.

Funds that bought the dollar as it rebounded in the last couple of weeks were doing more of a rebalancing exercise rather than taking a real shift in view, according to traders in Europe.

The rush to bet against the dollar had been looking overcrowded last month at a time when Citigroup Inc was touting a drop of up to 20% this year and Morgan Stanley was bracing for a tumble of up to 10%. Contrarians see prospects for more spending and distribution of vaccines as helping to buoy U.S. growth prospects and ultimately boosting the greenback.

“It has been a tricky start to the year for Group-of-10 FX, as the favoured trades have not performed,” said Stephen Innes, a strategist at Axi.

“But with Yellen putting a convincing and staunch dovish footprint on markets by supporting maximum policy overdrive, it should encourage more U.S. dollar shorts on the view that monetary and fiscal policy are singing from the same hymn sheet.”

The dollar weakened in early European trade, Wednesday, with risk sentiment on the rise after comments Janet Yellen, Joe Biden's nominee for Treasury Secretary, pointed towards substantial additional fiscal spending t reflate the U.S. economy.

At 3:05 AM GMT, the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 90.278.

USD/JPY was down 0.1% at 103.75, ahead of the Bank of Japans latest rate-setting meeting on Thursday.

EUR/USD rose 0.2% to 1.2154, GBP/USD climbed 0.3% to 1.3670, while the risk-sensitive AUD/USD was up 0.6% at 0.7736.

Yellen appeared Yesterday - Tuesday in front of the Senate Finance Committee as part of her confirmation hearing, and the former Federal Reserve head urged Congress to “act big” on Covid-19 relief.

She defended the need for President-elect Joe Bidens proposed $1.9 trillion relief package to revive a flagging economy and protect itself against long-term scarring from the impact of the coronavirus pandemic.

Opposition to the plan from Republican lawmakers over its cost given the already sizable budget deficit, but Yellen stated that its benefits will far exceed the costs over the long term.

“Further fiscal stimulus, along with a non-reactive Federal Reserve, should make front-end U.S. real rates even more negative and naturally weigh on the dollar,” said ING analysts, in a research note.

Attention now turns to Joe Bidens inauguration as U.S. President in Washington, at 12 PM ET (1700 GMT), amid a strong security presence given concerns about possible civil unrest.

In Italy, Prime Minister Giuseppe Conte won a confidence vote in the Senate late Tuesday, following on from Mondays victory in the House, after the departure of a junior member of his coalition. However, he will continue without a solid majority in the Senate.

While this is unlikely to completely end Italian political uncertainty, it does suggest “continued limited impact on the euro and limited build-up of risk premia in the currency,” ING added.

The European Central Banks latest rate settled meetings on Thursday looms large, but changes to its monetary policy are unlikely given it delivered a hefty easing package only in December.

Authors Biography

Bola Akinya is a Forex trader and consultant with more than 20 years of immense experience in Forex Indices, Commodities and Currencies.

Prior to becoming a professional Trader, she held positions as a Head of Sales/Business Developer with Credit Registry and Operations Manager with Peak Merchant Bank both in Nigeria before moving to UK where she worked with great companies like AIG and The Wealth Training Company as Course Instructor and Speaker for over 15 years on the FX and Stock Markets before she started her own company – The Learn and Earn Forex Training Company over 6 years ago.

Over the years, she learned 121 from Top traders all over the UK which enabled her to develop her own unique strategies and trading systems that has made her a successful trader and Trainer.

She is married with 2 boys and 2 cats.

With the combined use of Fundamental and Technical analysis, she trades on the short term – medium term, as well as Economic News releases, combining both to give the consistency that is required for successful trades.