Dollar Gaining Strength with Janet Yellen’s Backing; Precious Metals, Bitcoin, and S&P 500 Choppy
With the Treasury nominee pressed to make clear the US doesn’t seek weak USD, the greenback is rallying but expected to continue to decline.
While Bitcoin is consolidating in the $30k to $40k range after hitting a new all-time high of $42,000, the dollar is gaining strength.
But “on the macro side, dollar strength is a short-term blip, largely caused by positioning, and will be over in a matter of weeks,” said trader and economist Alex Kruger, adding, “the Fed is the key” with the next FOMC on Jan. 29.
As we reported, Bitcoin and the US dollar’s correlation shows a reading of -0.15, though not a particularly tight correlation; this is to be expected given Bitcoin’s greater volatility.
While -1 means a perfect negative correlation, +1 indicates a perfect positive correlation.
The new week started with digital gold above $36,000 and the traditional safe-haven asset gold taking a trip back to $1,800 per ounce. This lack of bullishness was also seen in silver prices falling to $24.2 only to make it around $25 today.
Investors' risk appetite is taking a backseat, as seen in the downward movement of the S&P 500 as well, which is down 1.46% from its ATH of 3,824 from 10 days back.
This latest risk averseness was the result of the market expecting Janet Yellen to give assurances that the US won’t seek a weaker dollar for a competitive trade advantage.
As reported by the Wall Street Journal, Yellen is expected to affirm the US’s commitment to market-determined greenback value, citing Biden transition officials familiar with her confirmation hearing.
The former chair of the Federal Reserve is also set to testify to the Senate Finance Committee on Tuesday and expected to win the title of Treasury secretary easily in the Senate. Biden, a Democrat, takes office on Wednesday.
“The United States doesn’t seek a weaker currency to gain competitive advantage,” Yellen is prepared to say, according to the newspaper. “We should oppose attempts by other countries to do so,” and that “The value of the U.S. dollar and other currencies should be determined by markets.”
The crypto market, however, is expecting the U.S. dollar money supply to rise even higher.
The policy outlined by Yellen comes at a time when investors are heavily short dollars; the value of the bets against USD is highest in almost a decade.
“(Yellen) is kind of signaling a hands-off approach, which is reverting to what had traditionally been the case before Trump,” said Bank of Singapore analyst Moh Siong Sim, who figures the dollar can still continue to decline as the key focus of the Treasury secretary would be implementing fiscal relief policies.
The dollar, which started bouncing recently today, climbed to 91.9 level, last seen on Dec. 21, 2020, up from the multi-year low of 89.2 on Jan. 6th, last seen in April 2018.