NEW YORK, Nov 24 (Reuters) - The U.S. dollar fell and the
Treasury yield curve steepened on Tuesday as investors hoped
that President-elect Joe Biden's expected nomination of former
Federal Reserve Chair Janet Yellen as Treasury Secretary could
ease the passage of a potential fiscal stimulus package.
The nomination, confirmed to Reuters by Democratic allies to
the Biden campaign on Monday, would put into office a seasoned
economist and labor market expert, a safe choice whose
experience, market participants believe, should afford her
confirmation bipartisan support.
The reports of her expected nomination have driven risk
assets higher and demand for safe-havens like the U.S. dollar
and longer-dated Treasury debt lower, steepening the yield
curve, a bullish signal.
Yellen has called for opening government spending taps to
revive an economy racked by the coronavirus pandemic and is
expected to urge Congress to pass further fiscal stimulus.
"Yellen I think is viewed as a deficit dove. In times when
she has spoken about anything related to fiscal policy in her
role as the Fed chair, it was often about how the Treasury needs
to do more to cooperate with the Fed and do their part by
providing fiscal support," said Tom Simons, money market
economist at Jefferies Group.
"Obviously she needs Congress to cooperate there, but she's
not going to be a limiting factor."
With Democrats having only a slim possibility of winning a
U.S. Senate majority in two Georgia runoffs in January, Yellen
faces tough negotiations with Republicans on a coronavirus
stimulus package as well as other pieces of Biden's agenda,
which includes raising taxes on the wealthy and investing
trillions of dollars in infrastructure, education and fighting
But her chances of being confirmed by a split Congress are
seen as high thanks to her experience at the Fed, where in 2015
she engineered the lift-off from zero interest rates in place
during the Great Recession, and on the White House Council of
That bipartisan support may help her make a case for these
"There is a little bit of comfort in the notion that she is
not dogmatic," said Simons.
"I think the key here is that her performance as Fed chair
should make it easier for her to get through the confirmation
The dollar has come under pressure in recent months, weighed
down by expectations that U.S. rates will remain near historic
lows for years to come and as news of various COVID-19 vaccines
helped boost investors' appetite for riskier currencies.
The dollar index which measures the greenback's
performance against a basket of currencies is down about 4% for
the year, on pace for its worst annual performance since 2017.
The index was last 0.26% lower.
"The market seems to think that Yellen and Powell equals a
dovish delight and spells trouble for the dollar," said Stephen
Innes, chief global market strategist at AxiCorp.
"But I think lower for longer is a mantra for all central
banks except maybe the (Reserve Bank of New Zealand)."
Given that most market participants were already expecting
the Fed to remain accommodative for an extended period of time,
the thought of a Yellen-Powell duo was not quite the gut punch
for the dollar or short-dated yields.
The benchmark 10-year rate rose on Tuesday, last
up 1.6 basis points to 0.875%, steepening the yield curve
to the its highest in a week.
(Reporting by Kate Duguid and Saqib Iqbal Ahmed; Editing by
Alden Bentley and Andrea Ricci)