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Yesterday, Joe Biden was inaugurated, while the US dollar continued to decline for three consecutive days. In fact, such a three-day negative dynamics of the national currency became the longest period of decline for this month. The dollar index began to sharply fall the other day after Janet Yellen's speech in the Senate. This is because investors took Yellen's appointment to Treasury Secretary as a sign to continue the era of ultra-low rates and increased government spending. Thus, the Bloomberg Dollar Spot Index declined by 0.3% on Wednesday.
In turn, the US dollar recovered all the won positions since the beginning of 2021, which gave hopes again to investors who got lost in short positions. It should be noted that selling the USD was among the most popular strategies for the current year, so the market took Janet Yellen's statements as a guide to action.
Analysts believe that the new American President Joe Biden's administration will not initiate a weakening of the dollar. But despite this, the main world currency is still expected to continue declining. According to them, the market's favorites (euro, commodity currencies, and the British pound) will be procyclical assets in the near future.
So, On Wednesday, the Canadian dollar and the British pound (which tested the highest level since mid-2018) took the lead in rising. On another note, the dollar index declined by more than 5% in 2020, and today, it seems that this trend is planning to return after a short correction. According to the Futures Trading Commission, hedge funds increased their net short dollar positions to a record high in nearly three years.
Experts think that J. Yellen's statement indicates that the ministry plans to abandon the monetary policy of former US President Donald Trump. They also jokingly said that the markets will no longer depend on Trump's news on Twitter in the next few years.
As a result, market participants reacted with distrust to the correction of the dollar amid interest in risky assets and expected return of the bearish trend after Biden's inauguration. It is clear that the funds that bought the dollar on corrections rebalance their portfolios. Thus, it is unlikely that we can confidently talk about changing the strategy today. At the end of 2020 and the beginning of 2021, the market showed a noticeable bias in positioning. Investors were determined to sell the dollar, worrying about its further fall. At the same time, there were no unambiguous forecasts among analysts – some assumed that the US currency will decline by 20%, while some were more optimistic and expected it around 10%.
On the contrary, other experts emphasized the statistics of rising costs and active vaccination of the population against COVID-19. These important indicators should have a positive impact on the prospects for the US economic recovery, which can support the US dollar.
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