US Dollar Index to trade on the back foot toward 88 in Q1 2021 – Westpac

FXStreet reports that economists at Westpac expect the USD bear trend to extend in 2021.

“Interest rate differentials are the USD’s Achilles heel, and they are likely to remain decidedly less favourable.”

“The Fed may have disappointed expectations by leaving the duration of their bond-buying unchanged, but flexible average targeting framework and their freshly minted forward guidance linking asset purchases to ‘substantial further progress’ will have much the same intended impact in capping yields, hindering any yield support that might otherwise emerge in the wake of a US recovery.”

“The US election crushed blue wave fiscal hopes, but Democratic wins in Georgia’s double Senate run-off races in early January and/or several moderate Republicans joining the fiscal cause could nudge the calculus back in favour of a major multi-year fiscal push.”

“Sustained Fed accommodation, a less combative US-China trading relationship, near 10% GDP growth for China in 2021 and a distinct lack of political uncertainties on the 2021 calendar should continue to drag DXY lower into 2021. DXY is limping into year’s end and likely continues to trade on the back foot toward 88 in Q1.”