2020 was a year of turbulence and fluctuations for the US dollar, as it dropped as low as it has been in a couple of years. What can we expect to happen as we look forward to next year?
How Has 2020 Gone?
USD tends to perform well against other currencies in times of economic turmoil, as investors look for the safety of the dollar. This helped it to climb earlier in the year, but the trend in the second half of 2020 has been for people to put their money into riskier investments, causing the dollar to drop.
Indeed, the hope that 2021 will see other markets surge has led to investors putting more money into the likes of stocks and commodities. The euro and Swiss franc have both reached levels not seen since 2018, while even the uncertainty surrounding Brexit hasn’t stopped the British Pound from making gains against the USD.
The fact that it was an election year and the Federal Reserve’s current monetary policy are other big issues that have caused this to be a difficult year for the American currency.
What Are the Experts Saying About the 2021 Outlook?
While opinion about future movement in the market is always divided, it is noticeable that many experts are already predicting another tough year for the dollar. Some analysts believe that it could lose as much as 10% against other major currencies in the coming year. This could see the euro reach as high as $1.25 before 2021 ends.
It should be noted that the decline seen in the value of the dollar has been less profound against the pound and euro. Where it is most noticeable is against more volatile currencies such as in Asia, the Brazilian real and the New Zealand dollar.
The general feeling is that the sharp decline seen in the last month or so will start to slow down, but that the USD will continue to lose value while the stock markets carry on thriving as the global economy carries on picking up pace.
Why Does This Information Matter?
There are some different reasons why the value of the USD is of interest to so many people. For a start, currencies in countries such as Panama, Saudi Arabia and Hong Kong are all pegged to the US dollar, so a change to its value directly affects them.
Many nations also keep a large portion of their reserves in USD, with two-thirds of China’s estimated $3 trillion or more in forex reserves thought to be in dollars. India has one of the world’s biggest reserves and they have even been put on the US’s currency watch list due to fears that they are stockpiling dollars to boost the rupee and gain an advantage in international markets.
The dollar is one of the world’s most-traded currencies too. New investors can use forex demo accounts with zero risks to each trader, to see how any shift in the value of USD affects them. They can then look at using different strategies and even trading bots to see how this could help them to earn profits if or when they open an account in earnest.
What Could Change?
Of course, any prediction about the future value of assets is based on the current time in an almost-constantly moving market. Therefore, any one of a number of possible changes could affect what we think could happen.
For example, an unexpected downturn in the global economy could force investors to turn back to the dollar as a safe haven. Equally, if the American government changes its policies this is likely to have an effect on the value of their currency, one way or another.
Another factor to take into account is Brexit, which still looks like dragging on a bit longer. If the UK and the European Union are unable to reach a suitable trade agreement it will affect the pound and, probably to a lesser degree, the euro.