According to analysts, we will go through a global economic rebound next year. Therefore the U.S. dollar will witness more downward pressure. Currently, investors choose riskier assets, and the FED keeps rates near zero.
Many embraced the dollar for its safe-haven qualities. Hence, the greenback’s wide future fall was put on hold at the beginning of 2020. Significantly, the dollar index hit increased to more than 102 in March. However, after then, the greenback has been falling. It was most recently trading near two and a half year lows below the 90 marks.
Some analysts say that the U.S. dollar may see strength in the first quarter of 2021. However, most analysts are confident that the overall trend for 2021 will be downwards.
The reasons for dollars’ declines are massive money printing, inflation, economic rebound, risk-on sentiment, and loose monetary policy.
According to Leigh Goehring, an Associates managing partner at Goehring & Rozencwajg, the greenback will weaken given the huge amount of debt and money printing in the United States.
The dollar could benefit from still increasing COVID-19 infections
Furthermore, TD securities strategists announced that the dollar could benefit from still increasing COVID-19 infections in the short-term. Additionally, it could also benefit from potential new lockdowns and a pause in the economic rebound this winter. They added that with effective vaccine news behind us, investors might change their attention. They could revert to macro fundamentals and the still-harsh realities of increasing COVID-19 infections rates worldwide.
Furthermore, Edward Moya, senior market analysts, and OANDA announced that the U.S. dollar would witness significant weakness amid the global economic recovery unfolds.
He added that the third and fourth quarter of the year is when the outlook will improve for emerging markets. This will further accelerate many carry trades that use the U.S. dollar as the funding currency. The greenback will resume sliding on the belief that the Fed will be the last to tighten, and emerging markets will soon rise.