​2021 USD Forecast: 5% Fall at Least

WikiFX News (26 Dec.) - The DXY is expected to continue on its downward trajectory in the upcoming 2021, amid the rising confidence in global recovery and the Fed's enduring accommodative stance of monetary policy.

The Fed has cut the Fed funds rate to near zero to bolster the economy during the coronavirus pandemic. With the introduction of a trillion-dollar coronavirus relief bill, the DXY has lost over 6% in 2020.

The Fed's sustained ultra-accommodative monetary policy would catalyze the next leg lower in the structural USD downtrend when viable, widely distributed vaccines hit the market, said Citibank.

“We forecast another 5-10% dollar decline through 2021 as the Fed allows the US economy to run hot,” ING chief economist Carsten Brzeski said.

Moreover, the growth gap between the US and other regions worldwide will continue to grow, which will weigh on the greenback.

This month, the DXY fall to 89.88, a fresh low since April 2018. Economists at Westpac forecast the DXY heading towards 88 in the first quarter of 2021.

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Chart: Trend of the DXY