The US Dollar’s Weakness Projected to Last through 2021

Finally, after trading in the red for most of the week, the US dollar managed to clinch its first hike.

The USD index tracks the performance of the greenback against other entities in the basket. The index hiked by a modest 0.03% at the end of the week.

It still settled on the avoided support level, just above the 90-point threshold at 90.688.

During the sudden turn of events following the ignited risk-on sentiment in the market, the dollar slid to 90.504 on Thursday, its lowest in two and a half years.

This is a painful reversal from the 102.990 high in March, its highest settlement in the last two years.

Accounting only for November, the US dollar weakened by a total of 3.0% and is down by 6% so far in the year. This is, in fact, its worst yearly performance since 2017.

The coronavirus however, is proving to be a persistent problem. Analysts project that the world’s reserve currency may likely sustain the bearish trend until the next year.

The United States recorded a total of 14 million coronavirus cases, the highest among all the countries worldwide.

In a medium-term projection, the hopes for the vaccine, together with the stimulus package, continue to ignite downward pressure for the world’s reserve currency.

In a poll participated by 72 analysts, 52 of them said that the dollar’s weakness is likely to last until the middle of 2021.

On the other hand, the remaining participants said that it could reverse before that.

The current trend on the financial markets suggests that investors are putting much of their bids on stocks and other riskier assets and away from safe-havens.

Foreign Exchange War Looming Post-Covid?

With this, the euro, Australian dollar, and other risky currencies continue to benefit from the situation.

According to an expert in the field, the USD remains overvalued and the recent convergence gradually takes the reason for that.

Recently, investors have been reacting assertively to the monetary policy adjustments happening. This resulted in the exploration of better investment opportunities on other assets.

Conversely, the greenback’s significance as a dominant player on global payment systems will prevent it from slipping further down.

On the other hand, experts warned of a looming of a foreign exchange war in the post-Covid 19 environment.

Examining the patterns in the past months, FX traders are betting on currencies from emerging markets despite the greater risk that comes with them.

Currency devaluations are not unheard of. For example, they are believed to be the main cause of the Great Depression back in the 1930s.