US Dollar Index: USD downtrend to recommence – Westpac

The US dollar gained ground this month on a growing expectation that the US economy will lead the global recovery in 2021. Currently, the DXY index trades at 92.0 compared to 91.0 on 5 February, having peaked at 92.5 in between. Economists at Westpac believe in the US and the dollar strengthened further this month but continue to think the USD upturn will prove transitory.

Key quotes

“Our core view remains that the recovery in global growth will be greater in scale and longevity than that seen in the US, seeing DXY fall back through the 91.0 level of 5 February by December 2021, to just below 88.0 towards the end of 2022.”

“Currently, the growth differential between the US and DXY constituents is heavily in favour of the US, particularly for euro.”  

“Immediate market expectations for growth are similarly skewed towards the US; but the US stimulus that is driving both actual and expected outcomes is heavily front-loaded in 2021, after which US growth prospects become more uncertain.”

“From their current lows, Europe’s prospects with respect to both the virus and economic activity should strengthen materially from mid-2021, with momentum sustaining into 2023 on the back of stimulus targeting investment and employment as well as the wider global recovery.”