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.

Government strategy: Jobs report firms Biden resolve to focus on household aid …

Currency pairsExchange Rate as of 4 February 2021The eventPost Event-Exchange Rate as of 5 February 2021 
AUD/USD0.7616US adds 49,000 jobs. Biden believes years before US sees full employment0.7616 
USD/CAD1.2782US adds 49,000 jobs. Biden believes years before US sees full employment1.2809 
USD/CNY6.4585US adds 49,000 jobs. Biden believes years before US sees full employment6.4639 
EUR/USD1.2030US adds 49,000 jobs. Biden believes years before US sees full employment1.9920 
USD/INR72.8942US adds 49,000 jobs. Biden believes years before US sees full employment72.8955 
GBP/USD1.3651US adds 49,000 jobs. Biden believes years before US sees full employment1.3637 
USD/JPY105.0200US adds 49,000 jobs. Biden believes years before US sees full employment105.3000 
USD/MXN20.1501US adds 49,000 jobs. Biden believes years before US sees full employment20.3041 
USD/DKK6.1815US adds 49,000 jobs. Biden believes years before US sees full employment6.2005 
USD/NOK8.5960US adds 49,000 jobs. Biden believes years before US sees full employment8.6190 
Source: OANDA

In the news

From the White House’s Council of Economic Advisors. This morning’s jobs report reveals that the pace of job gains has slowed sharply in recent months as the pandemic continues to weigh on job creation, especially in face-to-face services. Strong relief is urgently and quickly needed to control the virus, get vaccine shots in arms, and finally launch a robust, equitable and racially inclusive recovery. The Employment Situation in January | The White House

House Democrats on Friday voted to adopt a final budget measure, setting off an approximately two-week sprint to draft a coronavirus relief bill that would mark President Joe Biden’s first legislative win. House clears way for massive coronavirus stimulus plan (msn.com)

The Commerce Department’s National Telecommunications and Information Administration (NTIA) is committed to increasing broadband Internet access across America, particularly in unserved and underserved communities. The recently enacted Consolidated Appropriations Act of 2021 provides new sources of tribal broadband funding to assist in mitigating the effects of the COVID-19 pandemic which is exacerbating the digital divide across Indian Country.  NTIA Announces Tribal Consultations on New Program to Increase Broadband Access Across Indian Country | U.S. Department of Commerce

The Takeaway

The White House will not be placing emphasis on infrastructure deployment via its “American Rescue Plan.” The White House appears focused on short term aid to households via an additional $1400 in aid payments and on the gender issue, particularly the reported disproportionate impact pandemic-induced unemployment has had on women in the workforce. Not to say that infrastructure is off the agenda. Mr Biden through the U.S. Department of Commerce, has announced the administration’s intent to incentivize the deployment of broadband infrastructure on Native American lands via grants from the U.S. Department of Commerce.

Mr Biden’s approach to infrastructure, at this juncture, seems more like patchwork versus coordinated, targeted, and streamlined. Covid relief itself, through the American Rescue Plan, looks like it will be delayed with final work on legislation not expected until March 14th.

Currency markets should not view the funding as a currency mover especially with no definitive information on the impact the funding will have on interest rates or yields, factors that make the US more attractive for investment thus greater demand for US currency.

Interbank market scan: Central Banks. Cryptocurrency. Foreign Exchange. A dim jobs report and Biden does not see full employment for ten years ….

Nigeria’s central bank ordered deposit-taking banks and other financial institutions to immediately close accounts transacting in or operating cryptocurrency exchanges, saying such deals are “prohibited.” Nigeria Central Bank Orders Cryptocurrency Accounts to Close (msn.com)

Turkey’s lira hit its strongest level since August on Friday and cemented its position as the top-performing currency in the world this year, after the central bank governor told Reuters that interest rates were unlikely to be cut for a “long time”. Turkish lira jumps as central bank chief says rate cuts long way off | Reuters

A rise in cost of Nigeria’s short-term debt and a weaker naira rate to sell dollars to investors in a month’s time signal that the country’s central bank may devalue the currency for the third time in less than a year. Rising Nigerian Central Bank Yields May Signal Naira Devaluation (msn.com)

Central bank stimulus sustain rally in cryptocurrency. Bitcoin boom backstopped by central banks’ easy-money policies | Financial Times (ft.com)

New governor Naci Agbal does not expect Turkey’s central bank to begin considering cutting interest rates from 17% until much later this year given upward pressure on already high inflation, and rate hikes are still a possibility, he told Reuters. Exclusive: Turkey central bank chief Agbal says no rate cuts for a long time this year | Reuters

The announcement this week that Viviana Taboada and Mauricio Villamizar will join Colombia’s central bank board generated not only confusion over the spelling of Taboada’s first name, but predictions that interest rate cuts may be on the horizon. New Colombia central bank board members may back rate cuts | Nasdaq

Australia’s economic outlook has improved markedly thanks to the successful suppression of the coronavirus, but even under the most optimistic assumptions wage growth and inflation will still be too low by mid-2023, the country’s central bank warned on Friday. Australia central bank sees inflation staying too low even in most optimistic scenario (msn.com)

The announcement this week that Viviana Taboada and Mauricio Villamizar will join Colombia’s central bank board generated not only confusion over the spelling of Taboada’s first name, but predictions that interest rate cuts may be on the horizon. New Colombia central bank board members may back rate cuts | Nasdaq

President Joe Biden ripped the results of the final jobs report of Donald Trump’s presidency, and used the weak job creation to illustrate the urgency of passing his Covid relief package. Biden Rips Last Jobs Report Of Trump Presidency: ‘At That Rate It’s Going To Take 10 Years Before We Get To Full Employment’ (mediaite.com)

Government strategy: Joe Biden Playing it “by the book” and Scoring an “A” So Far ….

As Savik questioned Spock about his use of deception in their communications, the seasoned Starfleet officer reminded her that the narrative must always be presented by the book.Joe Biden is the seasoned commander and his “by the book” play so far has him scoring an “A.”

Yesterday, his Treasury secretary released a statement describing an economy on the rebound. The irony is that she noted it has been on a rebound since May 2020. MarketWatch, a business publication, has made the same observation.

Even with 10 million fewer people employed, the economy is inching closer to where it stood pre-pandemic. This should scare us folk who rely on our wages, but like Mr Spock, the Biden administration is using a little distraction away from the economic enemy by focusing on a reconciliation bill that may or may not provide any sustainable stimulus to an economy that may not need anymore stimulus dollars.

If a labor force of x-10 million can get the economy back on its feet then the real issue is not stimulus money or impeaching Donald Trump (another distraction engineered by Senate and House leadership). The real issues are a weaker dollar that suppresses wages, unemployed people who need work, higher interest rates due to the government borrowing needed to pay for stimulus, and a brewing currency war that challenges the dollar’s status as the world’s reserve currency. So, why the “A”? Because this is what a smart, newly elected president does in the first 100 days; they deliver what they promise.

The question is, at what cost the deception?

Interbank market scan: The US House today begins voting on Biden American Rescue Plan; central banks, foreign exchange, cryptocurrency …

The Takeaway

Across seven of ten major currency pairs the dollar exhibited continued weakness after two pandemic related events. First, there was the meeting between President Joe Biden and ten Republican senators. The President released a statement that signaled that he preferred the Democratic-controlled Congress pursue the reconciliation, a stream-lined process for getting approval of $1.9 trillion in spending on Mr Biden’s “American Rescue Plan.” The GOP senators wanted a package price tagged at $618 billion.

The second event will be actual voting on rules that provide instruction in the House on determining how revenue and spending targets be reconciled with appropriate changes in existing legislation. That vote begins today around 6:30 EST.

The main takeaway at this juncture is that the US government will have to borrow funds to finance Mr Biden’s plans and there is conjecture that Treasury will have to borrow more than the $1.9 trillion that Mr Biden is requesting. Central banks from emerging and commodity-driven economies are preparing to ramp up their reserves of the US dollar in order to buy up Treasurys when the debt is issued for purchase. Interest rates on the debt and yields are expected to inch up which theoretically should be accompanied by increased demand for the dollar. The Federal Reserve’s $120 billion per month of debt combined with other central purchases of US debt may work to create a supply of dollars to tamp down the dollar price.

Currency pairsExchange Rate as of 4:45 pm EST 1 February 2021The eventPost Event-Exchange Rate as of 2:00 pm EST 2 February 2021Impact
AUD/USD0.7641Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus0.7585USD strengthening
USD/CAD1.2776Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus1.2811CAD strengthening
USD/CNY6.4267Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus6.4551USD weakening
EUR/USD1.2135Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus1.2019USD strengthening
USD/INR72.8760Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus72.9415INR weakening
GBP/USD1.3699Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus1.3654USD strengthening
USD/JPY104.6400Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus105.0700USD strengthening
USD/MXN20.5641Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus20.1798USD weakening
USD/DKK6.1262Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus6.1874USD strengthening
USD/NOK8.5474Biden signals preference for reconciliation; Congressional Democrats prepare to vote on stimulus8.6173USD strengthening
Source: Federal Reserve and Reuters

The news scan

Both houses of Congress were preparing to take the first steps forward on U.S. President Joe Biden’s $1.9 trillion COVID-19 relief package, with initial votes on Tuesday launching efforts to fast-track passage. U.S. Congress readies first steps toward $1.9 trillion COVID-19 relief bill | Reuters

Several central banks have ventured into unusual territory in the opening weeks of this year, announcing currency sales in advance as they tread a delicate line between dulling the impact of a sliding dollar and dodging the ire of the US Treasury. Central banks take rare step of flagging currency sales in advance | Financial Times (ft.com) https://www.ft.com/content/0383f3a4-41a0-464a-b831-fd1a09a6b1b0

As the Treasury Department holds its largest auctions on record, global central banks could play a familiar role in helping to sop up the deluge of debt supply set to hit markets this year. Here’s why foreign central banks are set to reprise role as big buyer of U.S. government debt (msn.com)

The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing[1] for the January – March 2021 and April – June 2021 quarters[2]. TREASURY ANNOUNCES MARKETABLE BORROWING ESTIMATES | U.S. Department of the Treasury

Interbank market news scan: Biden ready to pull reconciliation trigger; central banks, cryptocurrency, foreign exchange

The strategy takeaway …

The White House yesterday released the following statement on President Joe Biden’s meeting with GOP senators:

“The President and the Vice President had a substantive and productive discussion with Republican senators this evening at the White House. The group shared a desire to get help to the American people, who are suffering through the worst health and economic crisis in a generation. 

While there were areas of agreement, the President also reiterated his view that Congress must respond boldly and urgently, and noted many areas which the Republican senators’ proposal does not address. He reiterated that while he is hopeful that the Rescue Plan can pass with bipartisan support, a reconciliation package is a path to achieve that end. The President also made clear that the American Rescue Plan was carefully designed to meet the stakes of this moment, and any changes in it cannot leave the nation short of its pressing needs. 

The President expressed his hope that the group could continue to discuss ways to strengthen the American Rescue Plan as it moves forward, and find areas of common ground  including work on small business support and nutrition programs. He reiterated, however, that he will not slow down work on this urgent crisis response, and will not settle for a package that fails to meet the moment.”

The key word here is reconciliation. In this statement, Mr Biden is signaling that the GOP’s offer does not come close enough to his vision on spending. Reports have the Republicans promoting a pandemic relief package of approximately $618 billion while Mr Biden wants a package of $1.9 trillion. Given Democratic Party control of both chambers of Congress, Mr Biden may believe that fast tracking his measure through Congress is his best option. He can argue that he kept his promise to pursue a bi-partisan approach with the Republicans while keeping his campaign pledge to push a $1.9 trillion plan.

Reconciliation allows Democratic House leadership to issue instructions to its committees to make changes in existing law to support the proposed program costs. The House Budget Committee bundles together the committees’ recommended changes in spending and revenues and submits the bundled recommendations to the House floor for vote. When the reconciliation bill is sent to the Senate, the bill goes through an expedited process. Filibuster is not allowed and a simple majority would be all that is needed to pass in the Senate.

Traders should position themselves for a stronger dollar accompanied by higher yields and an uptick in inflation due to additional spending by consumers. The duration of dollar strengthening, in my opinion, will be determined by the type of spending generated by the bill. As I concluded yesterday, Mr Biden’s America Rescue Plan does not appear to provide funding for infrastructure projects and seems more of a band-aid for households. With the bulk of monies expected to go to households, I expect spending on consumer items, rent, and mortgages.

Currency pairsExchange Rate as of 4:45 pm EST 1 February 2021The eventPost Event-Exchange Rate as of 1:49 am EST 2 February 2021
AUD/USD0.7641Joe Biden meets with GOP senators0.7626
USD/CAD1.2776Joe Biden meets with GOP senators1.2824
USD/CNY6.4267Joe Biden meets with GOP senators6.4605
EUR/USD1.2135Joe Biden meets with GOP senators1.2066
USD/INR72.8760Joe Biden meets with GOP senators72.9740
GBP/USD1.3699Joe Biden meets with GOP senators1.3676
USD/JPY104.6400Joe Biden meets with GOP senators105.0200
USD/MXN20.5641Joe Biden meets with GOP senators20.2827
USD/DKK6.1262Joe Biden meets with GOP senators6.1539
USD/NOK8.5474Joe Biden meets with GOP senators8.5639
Sources: Federal Reserve, Reuters

In the news …

Australia’s central bank held rates at near-zero in a widely expected decision on Tuesday and said it would expand its bond buying programme by A$100 billion ($76.4 billion)from mid-April to help support jobs and boost inflation. Australia central bank expands QE by $76 bln, commits to prolonged easy rates (msn.com)

China’s central bank on Tuesday conducted 80 billion yuan ($12.36 billion) of reverse repos to maintain reasonably ample liquidity in the banking system. China’s central bank conducts 80b yuan of reverse repos – Chinadaily.com.cn

The news of NVIDIA Corporation (NASDAQ: NVDA) potentially restarting production of graphics processing units (GPUs) production is very good news for all those hoping for bitcoin mining GPUs. Cryptocurrency Miners Are Eagerly Awaiting News From Nvidia – MarketWatch

Biden the portfolio manager …

Opinion

Alton Drew

Elected officials are constrained when it comes to their transparency as “portfolio managers.”  In a previous post I shared my insights into how taxpayers should treat the United States like a colony.  In the current American colony, the “mother country” is now made up of the individuals, corporations, and sovereign governments that own American debt: bonds, treasury bills, treasury notes, etc.  And when it comes to individuals, it is specifically those individuals who derive most or all of their income from the yields earned on the debt plus any equity they hold in public corporations; the “rentiers.” 

Public “portfolio managers” should be managing the American nation-state on behalf of American and foreign national rentiers.  And while America should not manage its resources for the benefit of sovereign nations that may be holding American treasury notes or American currency in their vaults, American “portfolio managers” should be mindful of the constraints on monetary and fiscal policy created by foreign ownership of dollar denominated debt and U.S. currency.

The incoming Biden administration has made no mention of this constraint.  Ironically his more poignant discussions on “Build Back Better” sound more like a rehash of the Trump administration’s “Make America Great Again” mantra with a twist of “diversity and inclusion” policy thrown in to appease voters in America’s ethnic minority class while promising to strengthen the manufacturing sector.

At the end of the day, “Build Back Better” is a strategic communications campaign aimed at the “end user” class; the group that sees government as “doer and savior”; the entity that protects and takes care of us; that looks out for the little guy.  Mr Biden aims no explicit public remarks to the “mother country” class, the class I referred to before that trades on the rents they expect from the American economy.  Being transparent as to the needs of the “mother country” class would also provide the remaining 99% of us an education as to the reason why the United States, as well as the other 180-plus portfolios around the globe exist and who these portfolios are truly managed for.    

It is unfortunate that Mr Biden cannot be transparent about the needs of the “mother country” class.  In my opinion, this class has inherited the ability to create and act on a vision that spawned the political economy Americans live in today.  That vision is one where capital is allowed to seek out an opportunity vacuum and morph into the going concern necessary for bringing that opportunity to fruition.

Included in that vision is the need for skillful portfolio managers that design and implement policy actions that create a playing field for traders to compete with each other in the Game of Capital, with the objective being he who has the most coin at the end of the day wins.  And the “mother country” class has an interest in Mr Biden managing the portfolio well.

And there is always another candidate vying for the job….       

Biden starts transition plans: Foreign exchange rates between U.S. and select countries in East Africa, West Africa, the Caribbean, and Asia

As of 11:11 am EST, 9 November 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .76559 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.30530 CAD

CAD/USD=0.76559   USD/CAD=1.30530

CNH/USD= 0.15166   USD/CNH=6.58901

EUR/USD= 1.18728    USD/EUR=0.84194

DKK/USD =0.15925     USD/DKK=6.27257

NGN/USD= 0.00261    USD/NGN=381.500

JPY/USD=0.00967       USD/JPY=103.34

INR/USD=0.01350       USD/INR=73.8010

JMD/USD=0.00675      USD/JMD=145.128

GYD/USD=0.00478       USD/GYD= 209.215

GHS/USD=0.17141       USD/GHS= 5.82600

XCD/USD=0.37037        USD/XCD= 2.70

KES/USD = 0.00909       USD/KES= 108.121

Source: OANDA

Major political/legal event in the United States

Presumptive president-elect Joseph R. Biden has launched a transition website that describes his initial initiatives he plans to address upon taking office in January 2021.  Mr Biden appears prepared to engage in a level of spending to address faults and inequities in the American economic infrastructure that were in place prior to the Covid pandemic.  Spending initiatives include:

  • Providing state, local, and tribal governments with financial assistance;
  • Extending Covid crisis unemployment insurance to people out of work;
  • Provide a financial package for small businesses and entrepreneurs;
  • Creation of a public health corps that puts the unemployed to work fighting the pandemic.

No discussion has been provided by the transition team yet on the costs of these packages and the impact they may have on money supply expansion/contraction, trade, or foreign exchange rates.

Source: BuildBackBetter.com

Foreign exchange rates: Joe Biden holds on to projected Electoral College lead …

As of 2:32 pm EST, 4 November 2020:

How to read the chart:

CAD/USD: If you come to the United States with one Canadian dollar (CAD)and wish to sell it for a US dollar (USD), the market price is .75909 USD.

USD/CAD: If you take a US dollar (USD) to Canada and wish to sell it for a Canadian dollar (CAD), the market price is 1.31720 CAD

Major event in the United States:  Ballot counting is continuing in the U.S. presidential elections. Democratic presidential candidate Joseph R. Biden is projected to win 227 Electoral College votes while Republican candidate Donald J. Trump is projected to garner 214 Electoral College votes.

CAD/USD=0.75909   USD/CAD=1.31720

CNH/USD= 0.14962   USD/CNH=6.68236

EUR/USD= 1.16900    USD/EUR=0.85533

DKK/USD =0.15697     USD/DKK=6.36901

NGN/USD= 0.00260    USD/NGN=383.455

JPY/USD=0.00956       USD/JPY=104.64

INR/USD=0.01342       USD/INR=74.3949

JMD/USD=0.00679      USD/JMD=144.248

Source: Bankrate

Are currency traders willing to pay more for the US dollar in face of US election? ….

Capital abhors a vacuum and even with the U.S. general election three days away, capital will try to cut through the campaign noise and seek out a return. From a political and legal event perspective, traders should assess the strength of legal challenges to voting, especially challenges raised by the Republican Party.

Republicans and Democrats have been building their legal teams for over a year and both will be on the lookout for voting irregularities including evidence of voter suppression or voter fraud. Republicans are expected to challenge authenticity of mail-in ballots and the deadlines for when these ballots are expected to be received. Traders should be particularly mindful of the intensity of Republican challenges given that incumbent president Donald J. Trump is running behind Democratic nominee Joseph R. Biden in national polls.

Real Clear Politics has Mr Biden polling at 51.3% versus Mr Trumps 43.5% during the period 21 October to 30 October 2020. PredictIt is pricing a .65 probability of a Democratic takeover of the White House versus a probability of .40 that the Republican Party maintains control of the Oval Office.

But the foreign exchange markets appear to see the value of the US dollar priced in various currencies increasing as we get closer to the election.

Country/Currency24 October25 October26 October27 October28 October29 October30 October31 October
Mexico (MXN)20.921020.840820.847620.966720.927121.169421.310121.2962
Canada (CAD)1.313611.311911.312201.318291.317761.325551.332211.33172
Japan (Yen)104.72104.66104.67104.87104.61104.30104.44104.49
China (Yuan)6.677336.676806.676806.699166.705156.716726.711576.68746
Euro.84496.84274.84288.84578.84622.85056.85398.85694
Eastern Caribbean Dollar2.702.702.702.702.702.702.702.70
Brazil (BRL)5.601805.618405.618185.621155.644745.722425.758215.76506
Price of US Dollar in selected exchange rates 24 October to 31 October 2020

With the exception of Japan and the Eastern Caribbean, the prices in foreign currency offered for a US Dollar have been inching up over the last week. Traders in the above nations reflect a number of major US trading partners and the increase in the amount traders in these countries are willing to offer a seller of the US dollar tells me that at a minimum, they have positive expectation in the potential for growth in the US and that public policies offered by Mr Biden might not deter expected growth or value of the dollar.

Again, traders should be on the lookout for any legal, legislative, or regulatory actions that thwart the ability of Mr Biden to garner enough votes to win the Electoral College.

Additional source: OANDA.com