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US Dollar Fundamental Outlook: Bearish
- US Dollar[2] could retreat after Mnuchin and Powell give their testimonies to House subcommittee
- Optimistic outlook, upbeat commentary could punish demand for havens, catapult high-beta FX
- Economic data stabilization is showing modest signs of plateauing as forecasts are recalibrated
US Dollar Outlook Ahead of Mnuchin, Powell Testimonies
On Wednesday, Fed Chairman Jerome Powell will be testifying to the House of Representatives’ Select Subcommittee on the Coronavirus Crisis. At previous interviews, he has stressed the need for continued monetary support with a growing emphasis on the fiscal side. Mr. Powell has said that monetary policy can only do so much and diplomatically stressed the need for the federal government to step in.
Republicans and Democrats have been locked in a stalemate over the proposal for another fiscal stimulus package with the former wanting a trimmed down version after the latter’s $3 trillion aid bill passed in May. Rather unexpectedly, the market reaction to the lack of progress has been somewhat muted, perhaps indicating that a degree of bipartisan intransigence was already embedded in market expectations.
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The following day, Mr. Powell and Treasury Secretary Steven Mnuchin will both be testifying to the Senate Banking Committee on coronavirus relief. Depending on the nature of the commentary at this hearing and the one with only the Fed Chair, the outlook from fiscal and monetary authorities could tilt the scales of market mood to favoring either a risk-on or risk-off bias.
Given the recent improvement in data and general signs of economic stabilization, a relatively upbeat tone may punish the haven-linked US Dollar, which at the time of writing is
