AllMarket Outlook
logoArgusJanuary 21, 2021

Daily Spotlight: Dollar Back at Normal Value

Market Outlook
Bearish - Short term

In 2020, the dollar surpassed cycle highs initially set in 2001-2002 and then again in late 2016. But since peaking in April 2020, the greenback has drifted lower. Currently, on a real trade-weighted basis, the dollar is in line with the average valuation over the past 20 years, and down from a 10% overvaluation in April. The fairly valued U.S. currency reflects several factors, but primarily the relative strength of the U.S. economy and global investor confidence in the U.S. Federal Reserve and Department of Treasury as the world battles COVID-19. Looking ahead, we anticipate a trading range around current levels for the greenback this year. That's because we think U.S. GDP may struggle to rebound -- not unlike the European and Asian industrialized economies. President Joe Biden is planning another round of fiscal stimulus, but there is no certainty that the divided Congress will again reach agreement to help the consumer-led economy. At some point, traders may become wary of the high level of U.S. debt relative to GDP. The drop in the dollar is beneficial to many sectors of the U.S. economy (including exports, basic materials companies and tourism) once the country's borders are reopened to travelers from abroad.

Subscribe to Yahoo Finance Premium for full access
Read the latest independent research including analyst forecasts, ratings on the US economy, and more. Get individual company and overall sector level recommendations.
Try Premium FREE