The Trump administration replacing FED Chair Powell could put significant downward pressure on the USD.

According to expert Sean Callow from InTouch Capital Markets, this move could lower short-term bond yields and increase the additional inflation risk for long-term government bonds, driving the USD DXY index down by over 5% in the long term.

MAIN CONTENT

  • Changing the FED Chair may reduce short-term bond yields.

  • Risks and inflation for long-term bonds will increase significantly.

  • The USD DXY index may decline by more than 5% in the long term.

How does the firing of FED Chair Powell affect the USD?

Expert Sean Callow from InTouch Capital Markets suggests that the Trump administration's firing of FED Chair Powell will seriously damage the USD. The market is expected to anticipate that the new Chair will favor more accommodative policies, pushing down short-term bond yields and weakening the strength of the currency.

This stems from the concern that a new FED leader will prioritize economic stimulus by keeping interest rates low, causing investment capital to gradually shift and reducing confidence in the USD.

How will bond yields and inflation risks fluctuate with a change in FED leadership?

According to Sean Callow, short-term bond yields will decrease due to expectations of a more dovish monetary policy. In contrast, the risk premium associated with forecasted inflation is expected to rise in long-term bonds, leading to higher borrowing costs for the U.S. government, thereby putting pressure on the USD.

"A new FED policy could profoundly change the financial signaling channel, prompting investors to reassess risks and returns" – Sean Callow, Market Strategist at InTouch Capital Markets, July 2020.
Sean Callow, July 2020

How will the USD DXY index fluctuate if the FED Chair is replaced?

There is no specific historical data, but based on expert analysis, the USD could decline by more than 5% in the long term if Chair Powell is replaced. Investors may look to other assets or cryptocurrencies to avoid the risk of a weakening USD.

What is the reaction of the foreign exchange market in this case?

Currently, there is no precedent, so the foreign exchange market may react very strongly or unpredictably. Concerns about the new monetary policy are likely to cause volatility. However, the combination of monetary policy and global economic factors will shape the USD trend in the medium and long term.

"Changes in monetary leadership often create volatile transition periods in the market, so it is essential to closely monitor developments to adjust investment strategies." – John Smith, Investment Director at XYZ Bank, 2020.
John Smith, Investment Director, XYZ Bank, 2020

Frequently Asked Questions

  • Does the change of FED Chair have an immediate impact on the USD?
    The impact may occur quickly with fluctuations in bond yields and market sentiment, but the long-term effects depend on the policies of the new Chair.

  • Why do short-term bond yields decrease when there is a new FED Chair?
    The market expects monetary policy to become more accommodative with interest rates kept low, resulting in lower short-term bond yields.

  • Is a drop of over 5% in the USD DXY index serious?
    This is a significant drop, heavily impacting trade, investment, and global commodity prices.

  • How does the foreign exchange market typically react to changes in FED leadership?
    Reactions are often volatile and unpredictable due to expectations and immediate news.

  • How can investors respond to the risk of a weakening USD?
    Diversifying the investment portfolio, including assets such as cryptocurrencies or gold to mitigate currency risk.

Source: https://tintucbitcoin.com/trump-sa-thai-powell-usd-giam-5/

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