Hawkish Monetary Policies by Federal Reserve Assist USD to Retake Its Place

The Federal Reserve (Fed) has ultimately faced the reality in the wake of its meeting last week. Monetary policies have turned to be hawkish for the first time after being dovish over the past year when COVID-19 raged on, leading USD to a strong rally. As for the market trend embraced by this currency in the future, attention should be paid to not only the extent of economic recovery enjoyed by the U.S. but the duration of hawkish messages made by the Feds officials.

Speaking of the American economy, the majority in the financial market are still be prudent and optimistic. There is no doubt that the attitudes of the Feds officials will be increasingly hawkish. This trend is an implication of speeding up the tightening of monetary policies, which is a spontaneous response to the economic growth, especially the escalating inflation, at this critical juncture amid the rampant pandemic, noted by James Brian Bullard, the chief executive officer and 12th president of the Federal Reserve Bank of St. Louis. Stimulated by his words, DXY has seen a surge again.

Eleven officials of the Fed, including Powell (the 16th chair of the Fed), are going to address speeches this week. In my opinion, they have a chance to send messages more hawkish than Bullard. Their behavior aims to satisfy Yellen and crave promotions instead of conforming to Powells statement. As Yellen showed her views on interest-rate hikes in early May and early June respectively, adding that this increase could be conducive to the Fed, involved officials understand that the absence of the hikes can position Fed to disadvantages.

Yellen is quite influential as the previous chair of the Fed who has led all existing officials before. Owing to Biden‘s trust in her, some officials, including Powell, may be replaced if they are insistent on dovish attitudes. Powell is possible to be replaced as his term will end in February 2022 and his competence is controversial. As a result, others who desire for this position will be more likely to spare no efforts to send hawkish messages in the future in a bid to gratify Yellen even Biden, continuously keeping their jobs and contending for the chair. In this case, I am very confident that the attitudes of the Fed’s officials will tend to be hawkish.

As for Yellen, the U.S. Secretary of the Treasury, even the Bidens administration, in my opinion, the American government is apt to strengthen USD in the future in response to the Russian National Wealth Fund dumping this currency and replacing it with EUR, aiming to rebuild the confidence of the financial market in USD because its further depreciation may cause other funds to follow suit.

Many readers may concern which currency is under pressure under the context of a continuously strong USD. The answer is EUR. In addition, AUD is weakened because of the plummet seen by the global stock market and copper prices. JPY experienced the plunge and then the rally last week, the reason for which is that safe heaven from promoting the U.S. bonds led to the decline of the U.S. bond interests and the growth of JPY. However, I am still not confident about the prospect of JPY in the long run.