What course will the foreign exchange market take in 2021?
The coronavirus pandemic heavily impacted the forex market in 2020. Currencies were often sold and bought based on investors’ desire to decrease or increase their exposure to risk-on assets. However, analysts think that traders’ attention will shift towards individual fundamentals in 2021, even though the pandemic still remains a major factor.
The U.S. Dollar Index lost lots of ground in 2020 as the U.S. government provided an unprecedented amount of stimulus to the economy while the Federal Reserve cut rates. After rallying to the 103 level in March, the U.S. Dollar Index tumbled down to 90. Thus far, it made only one serious attempt to rebound in September.
Besides, the pressure on the greenback is strong. The market consensus is that it will continue to decline. While last year’s downside move looks significant, the Dollar Index may have more room to fall.
The Euro increased at the end of the last year, as the pandemic provided significant support for it. However, the EUR/USD pair was under pressure in recent years due to disappointing growth rates in the Euro Area and dovish policy of the European Central Bank.
The recent increase in the value of the Euro will put more pressure on economic growth. Still, EUR/USD bulls will probably try to test new highs at the beginning of 2021.
Britain and the E.U. have at last managed to negotiate the Brexit trade deal. The successful end of negotiations caused the pound to rally. However, GBP/USD traders will have to find additional reasons to be bullish on the sterling now.
The U.K. struggles to contain the new strain of Covid-19. The pandemic may put additional pressure on the country’s economy. Furthermore, the economy may take another hit from Brexit, even though the blow will not be as serious as in the case of a no-deal Brexit.
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