Interbank Market News Scan: Yellen appoints a new Comptroller of the Currency chief …

Links of interest to follow …

Trading desks, investment banks. Barclay’s CEO Staley on trading revenue, compensation costs, and return to office. Barclays CEO Jes Staley Staley on Trading Revenue, Compensation Costs, Return to Office: Video – Bloomberg

Trading desks, banks. Citigroup, Nuveen accused of mishandling evidence in muni brawl. Citigroup, Nuveen Accused of Mishandling Evidence in Muni Brawl – Bloomberg.

Trading desks, banks, blockchain. European debt pioneer trumpets revolution coming from blockchain. EIB’s Richard Teichmeister Says Revolution to Come From Blockchain – Bloomberg

Banks.  U.S. Treasury Secretary Janet Yellen plans to make her mark by naming a new supervisor for a major U.S. banking regulator that Democrats say was too friendly to large banks under the Trump administration, according to two people familiar with the matter. Yellen to Shake up U.S. Bank Regulator With New Appointment – Sources | Investing News | US News

Banks, central banks. The U.S. nonprofit Digital Dollar Project said on Monday it will launch five pilot programs over the next 12 months to test the potential uses of a U.S. central bank digital currency, the first effort of its kind in the United States. Digital Dollar Project to launch five U.S. central bank digital currency pilots | Reuters

Foreign exchange rates of interest …

Currency PairsRates as of 11:05 pm EST 3 May 2021
EUR/USD1.2047
GBP/USD1.3879
AUD/USD0.7742
USD/CAD1.2293
USD/JPY109.1900
USD/NOK8.2964
USD/CHF0.9124
USD/SEK8.4250
USD/MEX20.2220
Source: Reuters

Janet Yellen’s Senate testimony emphasizes American Rescue Plan as integral to turning around the economy

The following is Janet Yellen’s written testimony before the U.S. Senate Committee on Banking and Finance …

“Chairman Brown, Ranking Member Toomey, members of the Committee, thank you for having me.

We are meeting at a hopeful moment for the economy – but still a daunting one. While we’re seeing signs of recovery, we should be clear-eyed about the hole we’re digging out of: The country is still down nearly 10 million jobs from its pre-pandemic peak.

When Congress passed the CARES and Consolidated Appropriations Acts last year, it gave the federal government some powerful tools to address the crisis. But upon taking office, I worried they weren’t powerful enough. After all, there were – and still are – some very deep pockets of pain in the data.

One-in-ten homeowners with a mortgage are behind on their payments, and almost one-in-five renters are behind on their rent. There are 22 million people who say they don’t have enough food to eat. One-in-ten adults are hungry in America.

I looked at data like these, and I worried that the COVID economy was going to keep hurting millions of people now and haunt them long after the health emergency was over.

We know that when the foundations of someone’s life fall apart – when they lose the roof over their head or the ability to eat dinner every night – the pain can weigh on them for years. Their earning potential is permanently lowered.  I worried about this happening on a mass scale.

That’s why I advocated very hard for the American Rescue Plan, and it’s why my first – and most enthusiastic – message today is: Thank you.

With the passage of the Rescue Plan, I am confident that people will reach the other side of this pandemic with the foundations of their lives intact. And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year.

Of course, the speed and strength of our recovery depends, in part, on how we implement the legislation. Treasury is tasked with much of that work, and there is nothing that I – or my team – take more seriously. We appreciate your oversight on this matter, and I want to briefly tell you about how we’ve been working.  

Since taking office two months ago, we have been expediting relief to the areas of greatest need. For example, small businesses – and especially the smallest small businesses, which are disproportionally owned by women and people of color.

The pandemic has hit these businesses hard. The Paycheck Protection Program was an early lifeline, but because of issues with the program’s design, the first rounds often didn’t reach the smallest sole proprietorships. We’re addressing that now. We worked with SBA to tweak how the program was implemented. It’s allowing the PPP to reach millions more microbusinesses and entrepreneurs, especially in rural and low-income areas.

We’re also building capacity to support these communities over the longer term. Because of the December legislation, Treasury now has $12 billion to inject into community development financial institutions and minority depository institutions. In turn, these CDFIs and MDIs can lend that capital out, helping people buy homes and start businesses in places that the financial services sector traditionally hasn’t served well.  

Then, there are the families I spoke about, the ones struggling to keep a roof over their head and food on the table.

The American Rescue Plan provides more than $30 billion to help renters and homeowners at risk of losing their homes. And we’re making sure that assistance flows as efficiently as possible.

For instance, the previous Administration put in place rules that required tenants and landlords to provide quite a bit of documentation to get rental assistance, including detailed statements about their income. But some people don’t have access to those documents. We’re cutting through the red tape for them, while still taking reasonable steps to prevent fraud and abuse.

And of course, we’ve been sending direct payments to Americans – a lot of Americans. As of last week, we had issued over 90 million payments. 

And all this is just a fraction of Treasury’s work. There are so many more relief programs, including one that will provide $350 billion in aid to state and local governments. Implementing all of it is more complicated than it sounds, and we are working closely with stakeholders to make sure that these programs are both efficient and effective.

Behind these many relief programs, these millions of transactions, are a staff of very dedicated (and very tired) Treasury and IRS employees. My final word is to them: Thank you. You are putting on a master class in how government should work in the furnace of a crisis. I’m grateful to be your colleague.

With that, I am happy to answer any questions you have.”

Government strategy: Is Biden staffing up for currency war with China and the Eurozone?

Last Friday, the Federal Reserve Bank of New York announced that the head of its markets group, Daleep Singh, has resigned to join the Biden administration as both Deputy National Security Advisor and Deputy National Economic Advisor. This is the second prominent Biden administration choice being asked to sit in what apparently are two different policy realms: foreign and domestic. Dr. Susan Rice, who is an expert in foreign affairs, is currently Mr Biden’s assistant for domestic policy and chair of the domestic policy council in Mr Biden’s absence.

Mr Biden reportedly thinks of domestic and foreign policy as one and the same. One of the holdovers from the Trump administration is the focus on China. Mr Biden has expressed that China should expect “extreme competition” from the United States while emphasizing that there is room for accord without conflict. Mr Biden has signaled that avoiding conflict during intense competition may require falling back on existing international law.

Mr Biden’s China agenda will require buy-in from the American public. American manufacturers and farmers in particular were directly impacted by the Trump administration’s tariff war with China. Mr Biden will need a domestic policy agenda that gets Americans on board with his China initiative while crafting a policy agenda towards China that reflects benefits in the American domestic economy.

The currency portion of the foreign agenda toward China for now does not include a currency war. At the outset of her tenure Treasury Secretary Janet Yellen signaled that the US would abandon any remnant of the “strong dollar” policy favored by the Trump administration preferring instead to allow the market to determine currency rates. The dollar’s overall steady weakening in currency markets makes its domestically produced goods more attractive to foreign importers, a weakening not due to any market intervention on the part of the United States. In theory this makes domestically produced items more attractive price wise to US taxpayers and makes imports from foreign nations i.e. China, more expensive.

Secretary Yellen will be receiving direct messaging from the Executive Office of the President on China and likely on currency issues. Ms Yellen, as Treasury secretary, is a member of the National Security Council for which Mr Singh will now have a high staff role. Mr Singh has extensive experience in the area of foreign exchange having focused on U.S. interest rates and the currency markets for the better part of eight years when he was with Goldman Sachs. Secretary Yellen is also a member of the Domestic Policy Council where Dr. Rice will serve as chairman when Mr Biden is not present.

The government strategy takeaway here is to pay additional attention to the messaging from the national security council and the domestic policy council and ascertaining whether messages out of the Executive Office of the President and the Treasury Department are in sync when it comes to the US’ stance on currency markets.

Interbank market scan: Elon Musk, the market mover; China serious about its digital currency; Central banks, foreign exchange, cryptocurrency

In the news ….

China’s new bank loans are expected to surge to a record high in January on a seasonal boost, a Reuters poll showed, while credit growth may be constrained by some marginal tightening of monetary policy as the central bank focuses on preventing risks. China’s January yuan loans seen at record high, central bank to cool credit growth in 2021: Reuters poll | Reuters

Nigeria’s central bank said it ordered deposit-taking banks and other financial institutions to close accounts dealing in cryptocurrencies because it was threatening the country’s financial system. Nigeria Central Bank Says Cryptocurrencies Were A Threat – Bloomberg

The Central Bank of Nigeria (CBN) issued a five-page statement Sunday clarifying its position on cryptocurrencies after a regulatory warning to local banking institutions on Friday sent shockwaves through social media. Nigerian Central Bank Says Its Ban on Crypto Accounts Is Nothing New | Nasdaq

Beijing and Suzhou will issue a total of 40 million yuan (US$6.2 million) in the latest trials of the nation’s digital currency this week in a bid to boost consumption over the upcoming Lunar New Year holiday. China digital currency: Beijing, Suzhou confirm latest trials as e-yuan tests top 100 million yuan | South China Morning Post (scmp.com)

Tesla and SpaceX CEO Elon Musk thinks crypto could be the future but his choice of token might not be Bitcoin, the dominant cryptocurrency. Elon Musk Hints At ‘Ironic’ Possibility Dogecoin Becomes A ‘Real Currency’ (ibtimes.com)

Hopes for the U.S. economic recovery seem to be transforming the dollar from a haven asset to the risk-on currency of choice. Dollar Morphs Into Risk-On Currency Amid U.S. Growth Hopes – Bloomberg

In making the case for a mammoth $1.9 trillion economic relief package, President Joe Biden and his acolytes had maintained that economists across the board agreed that now is the time to go big in the fight against the pandemic. Well, so much for that. A number of prominent economists and former policy makers — from Democrat Lawrence Summers to Republican Douglas Holtz-Eakin — have raised questions in the past week about the size of the package. So too have some economy watchers in the financial markets. Yellen, Summers Spar About Overheating Risk in Stimulus Plan – Bloomberg

Taiwan penalized Deutsche Bank AG and three other foreign lenders after a probe into speculation on the surging local currency last year involving grain companies. Taiwan Penalizes Deutsche Bank, 3 Others for Currency Trades (msn.com)

8 February 2021, 8:12 am EST

Interbank market news scan as of 4:03 pm AST: Federal Reserve, foreign exchange,

The Federal Reserve Board on Thursday announced the approval of the reappointment of 12 Federal Reserve Bank presidents and 11 first vice presidents, as previously made by their respective boards of directors.1 Each individual has been approved to serve a new five-year term beginning March 1, 2021. Federal Reserve Board – Federal Reserve Board approves reappointment of Reserve Bank presidents and first vice presidents

The Federal Reserve Bank of New York today announced the reappointment of John C. Williams as president of the Bank. Eligible members of the New York Fed’s board of directors voted unanimously to reappoint Mr. Williams, and the Board of Governors of the Federal Reserve System approved that decision. Mr. Williams’ new five-year term begins March 1, 2021. John C. Williams Reappointed President of New York Fed – FEDERAL RESERVE BANK of NEW YORK

The Senate Finance Committee, chaired by Sen. Chuck Grassley (R-Iowa), today unanimously reported for consideration to the full Senate the nomination of Dr. Janet Yellen to the secretary of the Treasury. Chairman’s News | Newsroom | The United States Senate Committee on Finance

The Senate Committee on Commerce, Science, and Transportation will hold a hearing on Tuesday, January 26, 2021 to consider the presidential nomination of Gina Raimondo to be Secretary of the United States Department of Commerce. Nomination Hearing – U.S. Senate Committee on Commerce, Science, & Transportatio…

Janet Yellen is Jo Biden’s Treasury Secretary nominee. She claims to support “market forces” as the driver for the US dollar. What does that really mean in a practical sense? Competitive Currency Debasement 101 Class is in Session (thestreet.com)

Returning business and consumption back to normal clearly hinges on lifting lockdowns quickly. But that may also allow governments to roll back extensive supports earlier too – possibly complicating the picture for stock and bond markets, which have already largely priced recovery on the back of a flood of public rescue money used to bridge gaps in activity. Column: Vaccine races and currency wars | Reuters

Government strategy: Strong dollar versus weak dollar policy …

Earlier today, Christine Lagarde, president of the European Central Bank, gave a shout out to Janet Yellen, the U.S. Treasury-elect. President Lagarde wished Ms Yellen well on her confirmation which is expected to go favorably sometime this week. Both women have commented on the state of the foreign exchange markets this week with Dr Yellen expressing her preference for market determined foreign exchange rates and President Lagarde telling reporters during today’s European Central Bank policy rate announcement that the ECB would be monitoring foreign exchange rates “very closely.”

In its early days, the Trump administration expressed a preference for a “strong” dollar. A strong dollar scenario is one where the U.S. dollar has risen to a historically high exchange rate relative to another currency. Strength could be attributable to another nation devaluing its currency relative to the dollar in an effort to make the foreign country’s exports more competitive.

Deleveraging is another method of dollar strengthening where debts are paid off which reduces the amount of dollars in the system thus increasing the value of the dollar.

Although a strong dollar protects foreign investor holdings of U.S. assets , the higher prices for imports faced by Americans could create a political scene where consumers start asking their government to reverse the course. The prior administration’s use of tariffs in its trade spat with China raised such concerns.

While Ms Yellen has again expressed her preference for market-determined rates, her future Treasury Department could buy and sell foreign currency for the purpose of narrowing exchange rate movements should a market-determination scheme not meet the Biden administration’s policy objectives. If the dollar is viewed as depreciating too quickly, Treasury could boost demand and value by using foreign currency to buy the greenback. If the dollar is viewed as appreciating too quickly, the Treasury could resort to using the dollar to buy foreign currency. If Dr. Yellen stays the course on a market policy, then the tactic will be to allow the foreign exchange rate to move to equilibrium.

Across the Atlantic, President Lagarde will likely not just look at exchange rates but try to determine the impact rates is having on yields. The European Union has been signaling its desire to boost the status of its currency, hoping to attract more investment to the Eurozone. President Lagarde would likely want to see appreciation in the euro and an accompanying increase in yields.

Traders and brokers should pay close attention to policy moves designed to make the euro and the dollar more attractive to investors and also how the European Union positions itself between the United States and China. Depending on how competitive the United States and the European Union become, shout outs between Dr yellen and President Lagarde will become more interesting.

Government strategy: Strong dollar versus weak dollar policy …

Earlier today, Christine Lagarde, president of the European Central Bank, gave a shout out to Janet Yellen, the U.S. Treasury-elect. President Lagarde wished Ms Yellen well on her confirmation which is expected to go favorably sometime this week. Both women have commented on the state of the foreign exchange markets this week with Dr Yellen expressing her preference for market determined foreign exchange rates and President Lagarde telling reporters during today’s European Central Bank policy rate announcement that the ECB would be monitoring foreign exchange rates “very closely.”

In its early days, the Trump administration expressed a preference for a “strong” dollar. A strong dollar scenario is one where the U.S. dollar has risen to a historically high exchange rate relative to another currency. Strength could be attributable to another nation devaluing its currency relative to the dollar in an effort to make the foreign country’s exports more competitive.

Deleveraging is another method of dollar strengthening where debts are paid off which reduces the amount of dollars in the system thus increasing the value of the dollar.

Although a strong dollar protects foreign investor holdings of U.S. assets , the higher prices for imports faced by Americans could create a political scene where consumers start asking their government to reverse the course. The prior administration’s use of tariffs in its trade spat with China raised such concerns.

While Ms Yellen has again expressed her preference for market-determined rates, her future Treasury Department could buy and sell foreign currency for the purpose of narrowing exchange rate movements should a market-determination scheme not meet the Biden administration’s policy objectives. If the dollar is viewed as depreciating too quickly, Treasury could boost demand and value by using foreign currency to buy the greenback. If the dollar is viewed as appreciating too quickly, the Treasury could resort to using the dollar to buy foreign currency. If Dr. Yellen stays the course on a market policy, then the tactic will be to allow the foreign exchange rate to move to equilibrium.

Across the Atlantic, President Lagarde will likely not just look at exchange rates but try to determine the impact rates is having on yields. The European Union has been signaling its desire to boost the status of its currency, hoping to attract more investment to the Eurozone. President Lagarde would likely want to see appreciation in the euro and an accompanying increase in yields.

Traders and brokers should pay close attention to policy moves designed to make the euro and the dollar more attractive to investors and also how the European Union positions itself between the United States and China. Depending on how competitive the United States and the European Union become, shout outs between Dr yellen and President Lagarde will become more interesting.

Interbank market news scan at 11:38 am AST. Latest on central banks and forex.

Investors may take Janet Yellen’s expected endorsement of a market-driven exchange rate as an additional green light for the U.S. currency’s long-term downtrend. Dollar Shorts Mount Before Yellen Outlines Market-Based Policy – Bloomberg

Gold edged up, recovering from an almost seven-week low, amid caution in markets as investors assessed the outlook for the dollar and the timeline for a U.S. stimulus package. Gold Edges Up From December Low With Focus on Stimulus, Dollar – Bloomberg

Oil futures edged lower as the dollar rose, while physical crude prices in Asia continued to weaken. Oil Near $52 With Virus Still Surging and Dollar Strengthening – Bloomberg

Five of six rate setters at the Bank of Israel voted to keep the benchmark interest rate at 0.1% on Jan. 4, minutes of the discussions showed on Monday. Five of six Bank of Israel MPC members voted to keep rate at 0.1%, minutes show | Reuters

The European Union needs a “masterplan” to move euro financial services from London to the bloc if it wants to expand the single currency’s role in a global economy dominated by the U.S. dollar, a senior EU lawmaker said on Monday. Markus Ferber, a senior member of the European Parliament, said if the EU wants to compete with the greenback, it needs a financial system to match it. EU needs ‘masterplan’ to grab euro finance from London | Reuters

Brazil’s central bank is poised to hold its benchmark rate steady again on Wednesday but will likely emphasize the need for policy normalization in response to quickly developing inflation pressures, a Reuters poll showed. Brazil central bank to hold rates this week, stress policy normalization | Regina Leader Post

Bond yields relatively unchanged in light of Yellen pick as Treasury secretary

As of 9:58 am AST 24 November 2020, U.S. Treasury rates and Federal Funds rates are as follows:

3-month: .08%

6-month: .09%

12-month: .10%

2-year: .16%

10-year: .86%

30-year: 1.58%

Fed Funds Rate: 0.08%

Federal Reserve Target: 0.25%

Prime Rate: 3.25%

Source: Bloomberg

Major political/legal event in the United States

Biden to nominate Janet Yellen for Treasury secretary

Axios reports that presumptive U.S. president-elect, Joseph R. Biden, will announce later today his choice of Janet Yellen as U.S. Secretary of the Treasury.  Ms Yellen, 74, served as chairman of the Board of Governors of the Federal Reserve System from 2014 to 2018.

Source: Axios