The week begins with a day off in the United States, which may translate into quieter trading and lower volatility. Only when Americans return to trade, volatility usually increases, which this time may be supported by Janet Yellen's speech.
The future US Treasury Secretary and former Fed Chair is scheduled to testify before the US Senate Finance Committee on Tuesday. According to information obtained by the Wall Street Journal, Yellen is expected to confirm that the United States is in favor of floating exchange rates and that the market determines the value of a currency. The former Fed Chair is expected to add that the U.S. will not care about a weaker dollar so that the country can thus gain a competitive advantage.
According to ANZ Bank, if Janet Yellen makes it clear that the U.S. does not also care about a strong dollar as the previous administration said, where the USD strength was a consequence of the strength of the U.S. economy, then a commitment to market-based exchange rates could mean that the Joe Biden administration will not mind a further weakening of the U.S. dollar. A weak dollar may even be advisable with the U.S. deficit growing rapidly, according to an ANZ Bank note cited by Bloomberg.
ANZ adds that the U.S. may put pressure on Asian countries to address the undervaluation of their currencies, which in turn would mean more dollar weakness against them. Thus, there seems to be a broad market view as to the trend in which the USD is expected to remain for the next few quarters. We are talking about a systematic trend of dollar weakness that may be punctuated by local corrections.
In addition to Janet Yellen's testimony, the market may look to whether Congress will agree to pass Joe Biden's $1.9 trillion plan, as doubts about this emerged at the end of the week, and how the inauguration and swearing in of the 46th President of the United States will go on Wednesday amid the recent unrest in Washington.
Also worth noting are the gold and silver markets. There, the prices definitely increased after testing the recent lows. The price of gold rose from the level of USD 1801 to USD 1840. In turn, silver rose from USD 24 to over USD 25 per ounce. Gold and silver seem to be gaining even despite the corrective strengthening of the US dollar, which may show the strength of demand for these metals. It's also worth noting that on Friday, 5-year US inflation expectations rose to 2.11 percent, the highest since December 2018.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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