According to analysts at Wells Fargo, the US dollar will remain weak during 2021 and in early quarters of 2022, despite interventions from central banks in the market to curb the strength of domestic currencies.
“Toward the end of 2020, and especially over the last few weeks, we have seen policymakers express discomfort with renewed strength in their respective currencies on concerns it could lessen their economic competitiveness in the global marketplace. Given the fragile recovery in many foreign economies, policymakers have suggested a weaker exchange rate may be preferred in an effort to enhance exports.”
“Despite the elevated amounts of FX intervention and FX reserve management operations from foreign central banks, we still favor U.S. dollar weakness in 2021 and in the early quarters of 2022. With the global economic recovery still broadly in place and vaccine distribution likely to be more widespread later this year, we believe a period of synchronized global economic growth will materialize. Against that backdrop, the U.S. dollar should follow historical patterns and gradually weaken.”
“The Federal Reserve is likely to keep policy rates lower for longer and unlikely to taper asset purchases anytime in the near future. Commitment to easy monetary policy should keep Treasury yields on a gradual path higher and continue to support risk sentiment. The combination of these factors should keep downward pressure on the U.S. dollar over the medium-to-long-term and foreign currencies supported.”
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