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Original Caption: The Forex Market Is Waiting To See: What Kind Of Dollar Policy Will Yellen Enact If He Becomes US Secretary Of The Treasury?
Now that the president-elect of the United States, Biden, has chosen Yellen as Secretary of the Treasury, participants in the currency market are now waiting to see: After Yellen takes office, what kind of dollar policy will he formulate?
The Trump administration’s erratic attitude on the US dollar issue has at times threatened to intervene in the US dollar or express dissatisfaction with the strength of the dollar, but often on the same day, the position will change 180 degrees. In this regard, some industry experts believe that Yellen can once again clarify US dollar policy and stabilize the exchange rate market with a daily transaction volume of US $ 6.6 trillion as a mainstay of trade and finance. worldwide.
Although the former Fed chair and her new boss, Biden, will initially focus on responding to the new corona epidemic and the damaged economy, it will take some time for dollar policy to become clear, but some traders still yearn for it.
Ben Emons, head of global macro strategy at Medley Global, said in a research report that Yellen’s appointment may lead to a more consistent policy for the US dollar. Their experience and knowledge can create a better formal environment for monetary policy.
Historically, the United States Secretary of the Treasury was responsible for US dollar policy, and the Treasury Department had a department dedicated to foreign exchange policy. From Clinton to Obama, the US federal government has consistently held the position that a strong US dollar exchange rate is a manifestation of a strong economy.
But this tradition faded under Trump. Trump and his aides often stop by Treasury Secretary Mnuchin to discuss the US dollar exchange rate without hesitation. Due to Trump’s obsession with reducing the US trade deficit, the US government’s commitment to maintaining the US dollar is much less rigid than in the past.
It’s worth mentioning that former US Treasury Secretary Summers said earlier this month that it is time for the United States to resume the Clinton administration’s strong dollar policy. He stated in an open letter to the next Treasury secretary that it is unwise to actively depreciate the dollar or be indifferent to the dollar.
Yellen has noted in the past that a stronger US dollar will expand the US trade deficit and slow economic growth, while a weaker US dollar will have the opposite effect. In 2014, he warned colleagues at the Fed that commenting on the dollar could pose risks.
Capital Alpha Partners analyst Ian Katz wrote in a report: “As a former chair of the Federal Reserve, Yellen fully understands the impact she can have on the market. She will carefully consider her words. Investors don’t have to worry about her improvisation. . Speech, thus exacerbating the market turmoil. “
Any policy change during the Yellen administration will be consistent with the growing consensus on Wall Street, which believes that the US dollar has entered a long period of weakness. Steven Barrow, head of currency strategy at Standard Bank, said: “As the US dollar will fall during Biden’s tenure, the issue of US dollar policy can be of great importance. Furthermore, the era of near-zero intervention by of developed countries may also be coming to an end. “
The Bloomberg Dollar Spot Index has fallen more than 11% since March. There are two reasons for the weakening of the US dollar. One is that the Federal Reserve is expected to maintain a low interest rate near zero for several consecutive years. The other is that the positive test results of the new crown vaccine have weakened investor demand for the US dollar. This trend is expected to continue during the administration of the Yellen Treasury Department, which will cooperate with Fed Chairman Powell’s long-term low interest rate policy, complemented by the expansive policies of finance ministers.
Of course, not everyone agrees that Yellen will make a strong statement on dollar policy, because his focus will be on the national economy.The new corona epidemic has lasted 9 months, and more than 6 million people are still claiming supplemental unemployment benefits. With the increase in the number of infections, the unemployment rate has increased again.
Eswar Prasad, author of “The Dollar Trap: How the US Dollar Strengthens the Control of Global Finance” believes that Yellen is unlikely to impose a specific policy on the US dollar because she will no doubt realize that domestic policies are more important. for the recovery of the United States. Trying to verbally control or intervene in the exchange rate is not the top priority.
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