Euro To Stay Stronger As Dollar Weakness Continues

The dollar ended the year on a weak note and may remain under selling pressure. After growing by almost 10% in 2020, the euro/dollar will continue to strengthen in 2021. As the eurozone continues to struggle with a slow recovery and subdued inflation, the overall weakness in the US dollar is expected to support the pair.

As mentioned in the previous report, we are bearish against the US dollar due to the dissipated yield differential, the Fed’s highly adaptive policy, and the loss of demand for shelter amid hopes for global reflation. The euro is likely to benefit from this.

Like other central banks, the ECB adopted unprecedented easing measures shortly after the coronavirus pandemic hit the world. The Pandemic Rapid Procurement Program (PEPP), a temporary quantitative easing program launched in March, had an initial package of 750 billion euros. Finally, in December, its size was increased to 1,850 billion euros. Besides, earlier this month, the central bank changed the terms of TLTRO and APP (a more regular quantitative easing program launched in the wake of the 2007/08 global financial crisis) to stimulate population stimulus.
USD Set To Continue the Downside Trajectory
Financial markets are likely to return to normal this week, although some volatility is expected ahead of Friday when the US releases its December nonfarm employment report.

The weakness of the dollar and the rise in shares supported commodities. The price of gold is around $1,900 per troy ounce, while the price of WTI oil is $48.40 per barrel.

The single currency declined after taking a profit but held above 1.2200 against its US counterpart. Commodity-pegged currencies and the pound continue to rally and may continue to rally. The latter rallied after the UK and the EU struck a post-Brexit deal.