US Treasury nominee Janet Yellen says that she will make clear that the US does not seek a weaker greenback.

She will affirm a commitment to market-determined dollar value at the next Senate confirmation hearing.

These are headlines circulating from a Wall Street Journal article on the weekend. 

Meanwhile, casting minds back, Janet Yellen once touted the benefits of a weaker greenback for exports.

However, as the incoming Treasury secretary, she faces pressure to return the US to a “strong dollar” policy.

The US adopted a policy of favouring a “strong” dollar in 1995, marking an end to regular calls for other countries to drive their currencies higher. 

And, then along came US President Donald Trump in 2017 who said the dollar was “getting too strong.”

Trump and outgoing Treasury Secretary Steven Mnuchin said that a weaker currency would help American exports.

Mnuchin also said an “excessively strong dollar” could have negative short-term effects on the US economy. Mnuchin went so far as to entertain Trump’s consideration to forcibly weaken the dollar in mid-2019.

However, Yellen herself has shared the same sentiment in the past as help in addressing the country’s current-account deficit. 

Market implications

The US dollar’s dominant role in the global financial system, as the world's reserve currency,  puts the onus on the Treasury to manage its responsibilities carefully.

Markets will be eager to front-run the new administration's policy before the fact, but a strong dollar is definitely needed if Biden's expansionary policy is going to be successful.

Yellen will now have to focus on a very different concern under her new tenure than she did when she began at the Fed in the 90's as a board member. 

With interest rates at historical lows, the risk is a massive debasement of the greenback to the point of no return and Washington will be unable to pay its bills. 

There is widespread bearishness for the greenback but a commitment to it from the White House should help to underpin the currency.

Monthly chart, DXY

The dollar is retracing the monthly decline and a 38.2% Fibonacci level is in view meeting prior lows that will now be expected to act as resistance. 

US dollar policy will be a hot topic for the first quarter of the year under the new administration. 

Yellen will testify on Tuesday. 

EU looks to promote euro, increase scrutiny of foreign deals

Meanwhile, in related news, there have been media reports this weekend on moves from the European Union to lay out plans to limit its reliance on the USD.

Citing a draft policy paper from the European Commission that will be adopted on January 19, the news notes that the EU’s vulnerability to US sanctions and to financial risks is of a topic and there are measures in the proposal.

''The plan includes measures to help protect against currency shocks, and allow greater scrutiny of foreign takeovers, according to a draft of the proposal obtained by Bloomberg. The plan to foster “openness, strength and resilience,” was earlier reported by the Financial Times,'' Bloomberg wrote. 

The Chart of the Week: EUR/USD enters the bear's lair

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

AUD/USD struggling to retain the 0.6900 mark

AUD/USD struggling to retain the 0.6900 mark

Wall Street plunged on Tuesday, dragging AUD/USD lower as the greenback benefited from the risk-averse sentiment. Softening gold prices weighed further on the aussie, now approaching its June lows. Australian Retail Sales in the docket.

AUD/USD News

EUR/USD nears 1.0500 amid inflation and recession concerns

EUR/USD nears 1.0500 amid inflation and recession concerns

The EUR/USD pair bounced modestly from a Tuesday’s low of 1.0502, maintaining a near-term bearish bias amid concerns related to economic growth and central banks’ actions to tame inflation. US core PCE inflation and German CPI coming up next.

EUR/USD News

Gold: Can the dollar finally win the battle?

Gold: Can the dollar finally win the battle?

XAUUSD is technically bearish and could soon lose the $1,800 level. Gold retains the sour tone on Tuesday, now trading at around $1,823.00 a troy ounce. The dollar seesawed between gains and losses, turning higher after the release of discouraging US data.

Gold News

Summertime bull-run a multi-year bear market?

Summertime bull-run a multi-year bear market?

The cryptocurrency market is in a historical pivotal moment. One good trade could replenish all losses, while one bad trade could be catastrophic.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Forex MAJORS

Cryptocurrencies

Signatures