USD: Biden’s economic policies to favor a weaker dollar – Capital Economics
Analysts at Capital Economics think that the United States will return to a more traditional approach to the greenback under Joe Biden’s administration, and they anticipate that the overall effect of its economic policies will favour a weaker dollar.
Key Quotes:
“As in many areas of economic and foreign affairs policy, the Biden administration appears to prefer a more traditional approach. His Treasury Secretary, former Fed Chair Janet Yellen, noted in her Senate confirmation hearings that, in her view, “the value of the U.S. dollar and other currencies should be determined by markets” and that “the United States does not seek a weaker currency to gain competitive advantage.” However, that does not mean that the Biden administration will be indifferent to the dollar’s exchange rate: Yellen went on to argue that the US should also oppose efforts by other countries to keep their currencies artificially weak.”
“We think the Fed will maintain its accommodative stance for longer than investors appear to anticipate and that, as a result, US yields will not rise nearly as much as they did in previous recoveries. In addition, a looser fiscal stance would boost US growth, thereby supporting the recovery of the global economy and the exports of other economies. That would probably further increase appetite for risk and weaken the dollar, especially against riskier currencies.”
“Our view is that both US fiscal and monetary policy will remain accommodative over the next couple of years – an overall policy stance similar to that in the immediate post-GFC years, as well as in the early 2000s. Just as it did on those occasions, we think that this policy mix will result in a weaker dollar.”
Author
Matías Salord
FXStreet
Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.
