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On Tuesday, Former Federal Reserve Chair Janet Yellen testifies in Congress as part of her confirmation hearings for Treasury Secretary. The market is of the view that Yellen will revert to traditional language on policy which is likely to mean more measured comments on policy and very little direct reference to the USD at all, according to Jane Foley, Senior FX Strategist at Rabobank.

Ahead of Yellen’s testimony, the US dollar is paring its gains as US traders return from a long weekend, pushing stock futures higher. 

Key quotes

“In order to clarify the view of the Biden Administration as distinct from that of the outgoing government, she will also reportedly state that ‘the US doesn’t see a weaker currency to gain competitive advantage’. This, however, doesn’t mean that the USD cannot push lower.”

“Given the low inflationary environment, it is possible that sustained USD weakness could be a factor in the decisions of other central banks to embark on additional easing measures. It is also reasonably to question whether the control of longer-term interest rates by a central bank can be viewed as having a currency manipulation theme. This is increasing more relevant given that more central banks are using their balance sheets as a monetary policy tool. Given this sensitive backdrop, we would expect Yellen to say as little as possible about the USD in the foreseeable future.”