Positive sentiment prevailing in the market continues to put pressure on the greenback.
On Wednesday, the USD index hit its lowest level in more than two years, dropping below 89.7 points.
Investors effectively ignored yet another delay in adopting further US fiscal stimulus.
The leader of the Republican majority in the Senate Mitch McConnell postponed a vote on increasing payments to Americans under incentives from $600 to $2,000.
While the amount of payments is still uncertain, many experts argue that the US currency will weaken even more next year. They assume that newly elected US President Joe Biden will push for even greater economic support measures.
Another negative factor for the greenback is the expectation that the Federal Reserve will keep interest rates low for quite some time.
"Investors now have a lot of reasons to sell the dollar. The Fed changed its monetary policy strategy, which leaves little chance of its normalization, and the growth of the double deficit of the US (the state budget and the current account) makes life easier for the bears on USD," strategists at Mizuho Bank said.
Analysts from Goldman Sachs noted that a number of factors, including negative real profitability in the United States, overvalued US assets and the country's current account deficit, will weigh on the greenback next year.
"We expect that the USD rate will continue to decline in 2021. The dynamics of liquidity and the flow of news about the pandemic may affect the timing of the dollar's weakening, but not necessarily its medium-term downtrend, " the bank's analysts said.
Meanwhile, some analysts believe that the further trajectory of the greenback will largely depend on how well the US authorities manage to contain the coronavirus in 2021, as well as on the prospects for fiscal stimulus in the country.
Mass vaccination against COVID-19 in the United States has just begun, and it is too early to draw conclusions about its effectiveness. At any moment, a new leap in uncertainty in this regard could cause the dollar to rise.
Newly elected US President Joe Biden has already announced that he plans to offer Congress a broader package of support for the national economy after his inauguration on January 20.
However, in order to move from words to deeds, the new US administration must break the political impasse that is now being created by the Republican-controlled Senate.
On January 5, 2021, Georgia will host the second rounds of elections for two senatorial seats. To change the alignment of forces in the Senate, both of them must go to the Democrats. In the case of Victoria, the latter, fiscal stimulus in the US will be generous, which is likely to cause the dollar to fall.
At the same time, the mere victory of the Republicans in Georgia will be enough to put Washington in a difficult situation, because of which it will not be possible to organize significant support for the American economy, which, most likely, will contribute to the greenback's growth.
