USD Selling Returns

The US Dollar has come back under selling pressure over night in response to comments from incoming US Treasury Secretary Janet Yellen. Speaking at her nomination confirmation hearing, the former Federal Reserve head told a Senate Committee that the US needed to "act big" in order to help revive the economy and talked up the need for a major stimulus package. Yellen outlined the incoming administration's plans to deliver wide ranging fiscal stimulus and argued that the benefits far outweighed the costs.

Equities Higher on Stimulus Talk

Equities markets were seen firmly higher in response to the meeting as Yellen talked up the need for stimulus, saying: “Economists don’t always agree, but I think there is a consensus now: without further action, we risk a longer, more painful recession now – and long-term scarring of the economy later.”

Yellen's comments come on the back of incoming president Biden, who will be sworn in later today, announcing his new $1.9 trillion stimulus proposal last week. Biden plans to deliver $1 trillion in direct aid to US citizens along with almost $500 billion for small businesses and $400 to help boost the fight against COVID.

Yellen Pushes For Greater COVID Resources

Yellen was keen to stress the need to further enhance the nation's battle against the pandemic, saying: “Over the next few months, we are going to need more aid to distribute the vaccine; to reopen schools; to help states keep firefighters and teachers on the job. We’ll need more funding to make sure unemployment insurance checks still go out; and to help families who are at risk of going hungry or losing the roof over their heads.”

Bipartisan Plea

This new stimulus proposal comes on the back of the $900 billion package agreed before the start of the year and is expected to be strongly opposed by Republicans who wanted a far lower figure. However, Yellen was forthright in arguing the severity of the need for such a package, despite the costs, telling the committee: “Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”

Given the majority held by the democrats in both the Senate and the House, the stimulus proposal should achieve the backing needed for approval. If the stimulus is approved this will likely provide a near term catalyst for further upside in equities markets and a continuation lower in the US Dollar.

Technical Views

DXY

The Dollar Index continues to hover around the 90.50 mark following the rebound off the 89.36 level support. With price still trading within the bearish channel which has framed the sell off since summer 2020, the bias remains bearish for now. Bulls will need to see a break above the 91.74 level and the channel top in order to affect a shift in sentiment.

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