Forex traders who are gradually sleepwalking into 2021, their main question in mind would be the impending fate of the US dollar. Unless you’re someone living under the rock, you’d know that 2020 was the year when the foreign exchange market was affected heavily by the coronavirus pandemic. Traders and brokers only bought currencies based on their need to increase or decrease their level of exposure towards risky assets instead of personal fundamentals.
However, now that we’re into 2021, it can be predicted that the attention of the traders will gradually shift towards individual fundamentals though the pandemic still remains one of the deciding factors among traders.
US Dollar – What is its fate?
The USDI or the US Dollar Index is the yardstick that keeps a measurement of the strength of the USD against the other major currencies. The USDI lost ground in 2020 as the Federal Reserve cut down on interest rates and the US government offered an unplanned boost to the US economy. On reaching the 103 level in March 2020, the US Dollar Index reduced to the level of 90.
The pressure on the dollar is rather strong and the US market consensus is that the dollar can continue to move higher. As the downward movement of 2020 might look significant, the US Dollar Index has all reasons to fall further low.
To put it in layman’s terms, the present levels can’t be seen as low for the United States of America and hence it may gain added downside momentum in case the global economic situation improves. It is only then that traders all over the world will invest in the riskier currency pairs.
Australian Dollar finished the year 2020 on a rather strong note and the main reason behind that was the corresponding strength in the segment of commodity market, particularly the iron ore market. Though the Reserve Bank of Australia adopted a dovish policy, this literally had no impact on AUD/USD as all the other central banks were dovish too.
In the year 2021, the trading relations of Australia with its primary trading partner, China, worsened but that couldn’t waver the interdependency of these two nations. This prevented the relations of the two countries from hampering permanently. Hence, you can’t expect any huge risks on this investment front.
UK and EU have recently negotiated the Brexit trade deal in such a manner that the main risk of USD/GBP wasn’t felt. GBP/USD was moving higher when the traders bet on the positive outcome of Brexit negotiations but now the traders will have to find added reasons to be bullish on the British pound.
The basic situation seems challenging for the UK economy during the initial half of 2021 and this exerts extra pressure on GBP/USD. Though the British pound has more room to run, the USD/GBP bulls will most likely require assistance from the usual weakness of the US dollar.
Therefore, now that you’re aware of the fate of three of the biggest foreign exchange currencies, you’d be able to make an informed and wise decision based on the facts given above.