22.12.202012:05 Forex Analysis & Reviews: US dollar is forecasted to decline in 2021

Long-term review

Exchange Rates 22.12.2020 analysis

The US currency is expected to decline according to long-term forecasts. The reputable investment bank Goldman Sachs was no exception, warning the markets about the dollar's prolonged fall.

The bank's currency strategists predicted that the US dollar will collapse next year, but now they have worsened previous calculations. Last month, experts assumed a drop in the dollar index, weighted by trade volume, by 6% in 2021. At the moment, this forecast has been revised towards a further decline of another 9% over the next 12 months. Goldman Sachs believes that the reasons for this are the excessively rapid dynamics of currencies on world markets at the end of 2020 and the high risk of a "hawkish" reversal in the current Fed policy.

The high volatility for the EUR/USD pair recorded in global markets at the end of this year was not for nothing. Today, the indicated pair gained impulse, gaining support after the adoption of stimulus measures in the US. It was trading near the range of 1.2222-1.2223, trying to strengthen its positions.

Exchange Rates 22.12.2020 analysis

It should be recalled that following the US House of Representatives, the US Senate approved today not only the draft budget for the 2021 fiscal year, but also a package of measures to stimulate the economy in the amount of $ 900 billion. So far, the White House, with the support of the US Congress, has allocated over $ 6 trillion. These emergency fiscal stimulus measures are designed to address the negative impact of the COVID-19 pandemic.

However, experts believe that such cash infusions can negatively affect the US dollar's dynamics. At the same time, the Fed's soft stance increases the probability of this turn of events. They think that the regulator will maintain the base interest rate at a minimum until 2024 and this will hinder the long-term growth of the dollar. In view of this, analysts noted that the yield on US bonds will not leave near-zero limits.

Experts also warn that dollar's current growth might be temporary. According to Goldman Sachs' analysts, the long-term planning range for USD dynamics will provide strong volatility. Their currency strategists believe that the factors behind the dollar's weakening in 2021 are the long-term exceeding growth of US assets, serious shortcomings of the US monetary system, which was clearly noticed after the Fed's cut the rate, the new targeting system for the inflation rate and the global economic recovery after the COVID-19 pandemic.

Larisa Kolesnikova,
Analytical expert
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