Forecasts for the US Dollar (USD) in 2021 Against the Major Currencies
This article looks at the trend in the US dollar forecast in 2021.
Bank forecasts for the US Dollar in 2021
The US dollar (USD) is volatile. Bank experts predict this will continue to be the case in 2021.
Bank experts believe that ongoing uncertainty from the coronavirus pandemic, a tumbling US economy and an increase in USD money supply will keep the USD weaker than other currencies.
However, there are a lot of influences that could impact US dollar moves and bank forecasts in the coming months.
How will coronavirus affect the USD exchange rate?
Uncertainty from the coronavirus pandemic increases volatility in currency markets. Usually safe-haven currencies like the USD, CHF and JPY could move higher. Meanwhile, commodity currencies such as the AUD, NZD, CAD and ZAR exchange rates could fall.
Going forward, the USD is pegged to remain weak against other currencies.
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Will the USD remain weak for the rest of 2021?
Let's examine likely reasons the US dollar could strengthen from current forecast levels:
- A coronavirus vaccine is successfully administered and economy can resume activities
- US government elections go ahead smoothly and US political risks ease
- The US economy picks up and the Federal Reserve (central bank) increases interest rates, supporting the USD
- Economic growth in non-US countries slow down and inflation only slowly and gradually picks up, increasing the chance of interest rate cuts outside of the US
- China’s economic growth strengthens more than expected, improving China trade and raising demand for US imports
What’s the impact of a weak US dollar?
The US economy is the biggest economy in the world. This is why events in the US significantly influences all other currencies.
Usually, when the USD goes up, your home currency can get weaker. When the USD falls, your home currency can get stronger. However, this isn’t always the case.
For example, in 2018 the USD got stronger, which means the Euro fell significantly throughout the year. There were other reasons why this happened.
If you want to see why the Euro fell or what will happen to your home currency next year, check out our guides for 2021 currency forecasts.
What are the key influences on the US dollar?
1. US Economy
When the US economy gets stronger the US dollar improves. A government stimulus package in response to the uncertainty and fears from the coronavirus pandemic might boost the economy. But when?
US politics has a big influence on the US dollar. In 2020 there was a Presidential election in the US, which generated a lot of uncertainty.
3. Imports and Exports
The US is world’s largest importer and is the world’s second largest exporter (second to China). When imports are greater than exports the US dollar rises, because it signals a more prosperous economy. Negatively, the US and China have been engaged in a trade war since April 2018. This can make the US dollar volatile relative to other currencies.
US Dollar against other currencies
Major banks agree the Euro will trend higher in 2021. Most bank analysts are expecting the EURUSD currency pair to gradually rise towards 1.2200.
Banks are expecting the Pound Sterling to weaken, as the coronavirus pandemic continues to weigh on the UK economy and Britain tries to manage its exit (Brexit) from the Eurozone.
Bank analysts agree the New Zealand Dollar will continue to come under pressure. Most banks are expecting the NZDUSD will remain around 67-70 cents over the next few months.
In 2021, the Japanese Yen has been firmer than the banks anticipated. Most banks agree the Yen will strengthen even further against the US dollar by the end of 2021, bringing the USDJPY exchange rate lower.
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