[Golden Group] Heavy-weight hearing coming! Yellen's speech is expected to release important information USD, gold will welcome a big rally
2021-01-19


FX168 Financial News (Hong Kong) - Tuesday (January 19) Asian market intraday, the dollar index was slightly lower, now around 90.70, spot gold rose moderately, gold is currently trading around $1,840 / oz. Investors are awaiting Yellen's comments on stimulus policies ahead of a Senate confirmation hearing on Tuesday, and currency policy is also likely to be included in her remarks. Analysts said Yellen's latest comments could have a big and significant impact on the dollar, which in turn could provide a short-term guide to gold prices, and investors need to be wary of market volatility during Yellen's hearing.
 
The Senate Finance Committee will hold a hearing on Janet Yellen's nomination to be Treasury secretary at 23:00 Hong Kong time on Tuesday. If confirmed by the Senate, Yellen would replace current Treasury Secretary Steven Mnuchin and become the first female Treasury secretary in U.S. history.
 
U.S. President-elect Joe Biden's nominee for Treasury Secretary Janet Yellen will appear before the Senate Finance Committee on Tuesday to confirm her nomination, Reuters reported. Ms Yellen is understood to be telling the Senate finance committee that the government must "take significant action" on its next new bailout package.
 
"Neither the president-elect nor I will ignore America's debt burden in proposing this relief," Yellen said in a prepared opening statement at the committee hearing. But right now, with interest rates at historic lows, the wisest thing we can do is take dramatic action. I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for too long."
 
The proposed aid package includes $415 billion to support the U.S. response to the virus and the Novel Coronavirus vaccine, about $1 trillion in direct assistance to families and about $440 billion to small businesses and communities that have been particularly affected by the outbreak.
 
Many Americans will also receive $1,400 in stimulus money, in addition to the $600 checks approved in an aid bill Congress passed last month. Supplementary unemployment insurance will also be increased to $400 a week from the current $300 and will be extended through September.
 
In her prepared testimony, Yellen also said the U.S. economy must be rebuilt "to create more prosperity for more people and to ensure that American workers can compete in an increasingly competitive global economy."
 
Mr Biden, who will be sworn in on Wednesday, last week outlined a $1.9tn economic stimulus plan, saying bold investments were needed to stimulate the economy and speed up the distribution of vaccines to contain the new pandemic.
 
The proposal, known as the American Rescue Plan, includes several familiar incentives in the hope that the additional financial support will sustain American families and businesses until the vaccine is widely available.
 
Since gold is often seen as a hedge against inflation and currency depreciation, a big stimulus package would boost demand for the precious metal.
 
"Gold is seen as an inflation hedge, and it could get a boost from fiscal stimulus," said Lukman Otunuga, senior research analyst at FXTM.
 
Yellen's speech is expected to have an impact on the trend of the dollar and gold
 
In addition to stimulus policy, Yellen is expected to address currency policy at the hearing. US media reported on January 17, citing Biden's transition team as a source, that Yellen will make it clear that the US will not seek a weak dollar for a competitive advantage.
 
Yellen is expected to reiterate her commitment to market-determined exchange rates at Tuesday's hearing, according to officials familiar with Biden's transition administration.
 
If asked about the new administration's dollar policy at Tuesday's hearing, Ms Yellen will reportedly respond: "The value of the dollar and other currencies should be determined by the market. Market adjustments reflect changes in economic performance and can broadly contribute to global economic adjustment."
 
The Wall Street Journal reported that the stance means the new administration will abandon the weak dollar policy called for by President Donald Trump. During his term in office, Trump has repeatedly expressed the view that the "dollar is too strong", arguing that a strong dollar hurts US competitiveness while a weak dollar helps US exports.
 
Ms. Yellen has been one of the leading doves during her tenure as Fed chair. Ms Yellen has previously cited the benefits of a weaker dollar for exports and improving the current account deficit.
 
In 1995, the United States adopted a policy of supporting a strong dollar. No administration since then, until the Trump administration, has said the dollar is "getting too strong."
 
Analysts said Yellen's comments could have an important impact on the direction of the dollar, which could provide guidance for gold prices. Gold's recent moves have been heavily influenced by moves in the dollar.
 
"It's not like the strong dollar policy of the past," Khoon Goh, head of Asia research at ANZ Bank in Singapore, said of Yellen's upcoming speech. A commitment to a market-determined exchange rate means the new administration would be happy to see the dollar weaken further."
 
Rodrigo Catril, currency strategist at National Australia Bank in Sydney, said: "We interpret Yellen's view to mean that the US government is unlikely to prevent a sustained market-driven dollar depreciation. The current downward trend in the dollar is not being challenged."
 
Rhona O'Connell, head of market analysis at Stonex, said: "Yellen is scheduled to testify before Congress on Tuesday and is expected to say that she does not favour an intentional devaluation of the dollar but would prefer to see it fluctuate in line with the free market. "This is in principle positive for the dollar because it is a change in policy."
 
"Yellen seems to be signalling a hands-off approach, a return to the traditional pre-Trump approach," said Moh Siong Sim, an analyst at Bank of Singapore. I think for the finance minister, his comments will be less focused on the dollar and financial markets and the main focus will be on the implementation of the fiscal rescue policies." He predicted the dollar could continue to slide.
 
Commerzbank analyst Carsten Fritsch said the impact on gold prices would depend on the extent and direction of the dollar's reaction to Yellen's speech.
 
Yellen also doesn't want the dollar to strengthen, according to Commerzbank, which expects euro/dollar to be unlikely to fall below the 1.20 mark.
 
Nicholas Frappell, global managing director at ABC Bullion, said gold remained vulnerable to dollar sentiment and yields in the short term.
 
Phillip Streible, chief market strategist at Blue Line Futures, said gold could fall below $1,800 an ounce and hit $1,795 if the dollar index gains.