​Dollar May Rebound on New Stimulus Package

WikiFX Strategy (30 Jan.) - Despite a consensus market expectation for a weak dollar in 2021, ABN Amro predicted a dollar rebound on the rising spending under the US new administration and on the economic recovery.

The latest forex forecasts from ABN Amro show the US dollar might already have bottomed out for at least the duration of 2021. Rising federal government spending under the new administration of Joe Biden is expected to be the key issue in determining the dollar's outlook.

“A strong US economy makes the dollar more attractive. In addition, we think that inflation expectations are toppish. As a result, US real yields will improve. These developments are supportive of the dollar,” said a senior FX strategist at ABN Amro.

The macroeconomic research firm, MRB Partners, pointed out that the challenge ahead of the dollar in 2021 is the fading of its long-term appeal. But as the world's leading reserve currency, the dollar will unfold its mild decline after a long period.

The consensus for a weak dollar will face challenges in 2021, with chances of being proved inaccurate. Multiple technical indicators have suggested that the dollar is currently oversold. The greenback has a great chance to touch the low of 88.253 recorded in February 2018, where a successful hit will open the door for a rally.

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Chart: Trends of the DXY