Yellen sends the dollar lower

Yellen’s stimulus testimony weighs on dollar

Janet Yellen testified on Tuesday at her confirmation hearing for US Treasury Secretary. Yellen’s remarks on additional US stimulus, to the tune of USD1.9 trillion, triggered gains for equities but losses for the US dollar.

The US dollar edged lower as Ms Yellen’s “go big or go home” testimony on fiscal stimulus increased risk appetite generally. That fed through to a slightly weaker US dollar, with the dollar index falling 0.29% to 90.50. The index has eased again this morning with regional Asian currencies outperforming, falling another 0.15% to 90.36. The dollar index has been content to range between 90.00 and 91.00 over the past week. A daily close above or below those points will set the next direction for the US dollar.

The major currencies all rallied overnight, notably the euro and the Australian and New Zealand dollars, which continue higher this morning, along with sterling. However, all still remain firmly in downside breakout patterns, suggesting that the US dollar short squeeze is not done with markets just yet. EUR/USD needs to reclaim 1.2300, AUD/USD 0.7700, NZD/USD 0.7300 and GBP/USD 1.3700 to change that technical outlook.

The European Central Bank and the Bank of Canada also announce rate decisions over the next 24 hours. I expect no change from either, but the ECB may note the increasing risks to the European recovery due to the sweeping national lockdowns across the bloc. Neither decision should have much impact on the markets.

US stimulus talk and a new US president have been more keenly felt in Asia, with regional currencies rallying strongly today. That suggests that much of the new-found positive sentiment is flowing to Asian, not to major currencies. USD/CNY is 0.15% lower at 6.4700 with the yuan’s range trading set to continue. The Singapore dollar and Indonesian rupiah are 0.20 higher today, with the Malaysian ringgit unchanged ahead of the Bank Negara decision.

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