US: Yellen's dollar policy to rock the greenback

Former Federal Reserve Chair Janet Yellen is set to testify in Congress as part of her confirmation hearings for Treasury Secretary. According to FXStreet’s Analyst Yohay Elam, Yellen's Congress comeback could prove explosive, especially on debt, stimulus and the dollar.  

Ahead of Yellen's testimony, stocks are moving higher while the better market mood is weighing on the dollar, reversing its gains.

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

Key quotes

“She may talk about tax hikes. In that case, stocks would fall and the safe-haven dollar would rise. On the other hand, she may stress that borrowing costs are low and will likely stay as such. By signaling that Uncle Sam will still be able to borrow at low rates, investors may get the impression that the Fed would buy more bonds. Any sign that the Fed could increase its bond buys would bolster stocks and send the dollar tumbling down.”

“Stimulus 1.0 will likely pass before March so the next moves are around the corner. Yellen will likely remain vague about the second move, but any hint about its potential size, timing and scope could move markets. The more she discloses and the higher the sums, the better for risk – stocks may rise and the dollar would fall. Offering less would have the opposite effect.”

“The US has been officially aiming to have a ‘strong dollar.’ Yellen may stray away from that, opting instead for a policy that officially encourages markets to determine the greenback's value. A formal shift away from the ‘strong dollar’ may weaken it.”