US dollar to experience further weakness in the year ahead – MUFG

The US dollar has softened overnight ahead of today’s appearance for Treasury Secretary nominee Janet Yellen in front of the Senate Finance Committee. Yellen’s hearing is set to provide more insights on USD policy under Biden administration but is unlikely to prove market-moving for the US dollar, per MUFG Bank.

See – US: Yellen to avoid comments on the US dollar – Rabobank

Key quotes

“It has been reported in advance of the hearing that Janet Yellen will argue that ‘the smartest thing we can do is act big’ as she seeks support for the Biden administration’s proposed $1.9 trillion COVID-19 relief package. The Biden administration is also reportedly preparing a second, multibillion-dollar recovery plan that would increase spending on infrastructure, green energy, healthcare and education.”

“The increasing likelihood of bigger fiscal stimulus including infrastructure investment is supportive for commodity prices and related currencies. We continue to see scope for further gains in commodity-related currencies in the year ahead which should benefit as well from the strengthening global recovery once vaccines are rolled out more widely.”

“The Wall Street Journal has reported that Janet Yellen is prepared to say ‘The value of the US dollar and other currencies should be determined by markets. The US does not seek a weaker currency to gain competitive advantage. We would oppose attempts by other countries to do so’. The comments appear in line with the standard international agreements on currency policy amongst major economies and are unlikely to prove market-moving for the US dollar.” 

“The Biden administration is expected to support a strong US dollar policy. However, we do not believe that fundamentals are as supportive for a strong US dollar, and continue to expect further weakness in the year ahead.”