USD forecast: What’s next for the greenback in 2021?

USD forecasts remain uncertain as the global economy continues to avoid further lockdowns


After a weak performance in 2020, the US dollar (USD) has begun to strengthen again this year. Despite the fact the US Federal Reserve (the Fed) still appears to be some way off tapering fiscal policy, and the markets retain a risk-on attitude, there is some, albeit limited, scope for optimism for the greenback.

Let’s take a closer look at the US dollar news from this year and see where a USD forecast could go from here.

USD performance so far in 2021

The US dollar gained against the euro in choppy trading earlier in the year. The eurozone currency was trading at $1.23 against the USD at the start of 2021, a two-and-a-half-year high.

The pair fell across the first quarter of 2021, hitting a year-to-date intraday low of $1.17 on 31 March. The euro weakened, and the US dollar performance improved across this period as America ramped up its vaccination drive while the eurozone struggled under its second lockdown and experienced a slow start to its vaccine programme.

From the start of the second quarter, the euro was rising again versus the US dollar, rebounding off $1.17 before running into resistance at $1.23 on 1 June. Rising risk appetite dragged on the USD, boosting the euro during this period. On 19 June, the euro dropped again to $1.19, falling further to a low of $1.17 on 19 August.

Last month, the euro made a slight comeback against the dollar, hitting $1.19 on 5 September before plateauing from 8 September.

Estimates confirmed the European bloc’s economic rebound had gathered traction with growth of 2.2% by the third quarter. As traders and analysts in the US pore over the recently published Consumer Price Index – reporting a jump of 6.2% –  the Fed is expected to respond to the biggest inflation surge in more than 30 years. 

At the upcoming Federal Open Market Committee meeting in December, the central bank will be announcing faster tapering and will signal a rate hike at the end of Q2, or beginning of Q3 2022. The USD has struggled throughout the year, and the EUR/USD exchange rate as of the 16 November is roughly $1.13.

USD forecast 2021

From inflation to US President Joe Biden’s economic policy, to higher risk appetites in the market, there are a host of factors that have led to a weakening of the dollar. Let’s take a look.

The Fed and monetary policy

Throughout the pandemic, the Fed has adopted a very lax monetary policy and much to the disappointment of investors, it appears to be quite a way off tightening up.

The US central bank cut interest rates to a record low of 0%–0.25% and initiated a quantitative easing programme, buying up $120bn (£89bn) worth of bonds each month. The ultra-loose monetary policy dragged on demand for the US dollar, weakening the currency in 2020.

In early June, the Fed upgraded its growth outlook, announcing that two interest rate rises would likely occur in 2023. In the previous meeting, it hadn’t expected any rate hikes in 2023, instead predicting the first increase in interest rates in 2024. As a result, markets rallied, with the US dollar experiencing its biggest one-day jump since March 2020 on news of the announcement.

In early August, the Federal Reserve reiterated that while inflation stays low, interest rates wouldn’t be hiked until 2023.

Fed vice-chair Richard Clarida said: “Given this outlook, and so long as inflation expectations remain well anchored at the 2% longer-run goal – which, based on the Fed staff’s common inflation expectations (CIE) index, I judge at present to be the case, and which I project will remain true over the forecast horizon – commencing policy normalisation in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework.”

Given the fact higher inflation would put pressure on the Fed to raise interest rates earlier, USD bulls were left disappointed as inflation appeared to ease across the US.

The Consumer Price Index (CPI) also edged up 0.1%, compared with an increase of 0.3% last month. Year-on-year core CPI increased only 4% compared with 4.3% last year.

These results, reported by the US  Department of Labor, echoed Federal Reserve chair Jerome Powell’s view that high inflation is transitory rather than here to stay. 

However, news on the CPI published from October is indicative of worse to come should the Fed not tighten monetary policy by the middle of next year. A 6.2% increase has been reported, and will be addressed in the upcoming Federal Open Market Committee meeting in December. 

Senior economist Sam Bullard at Wells Fargo told the Reuters news agency: “Supply disruptions and the recovery of services poses a substantial concern that higher-than-expected inflation could persist for longer than the Fed believes.

“We expect goods inflation to hand the baton to services over the course of the next year, but all signs indicate that supply chain bottlenecks will keep fanning the flames on inflation in the near term.”

US dollar forecast 2021: risk-on

With hopes that we have seen the last of the major shutdowns as a result of the Covid-19 pandemic, the markets have increased their risk appetite.

This news is not great for the US dollar, however. As a rule of thumb, USD forecasts usually anticipate the greenback will gain strength during times of crisis. When investors get nervous as economic turmoil looms, they flock to the dollar for safety.

The US dollar outlook has thus been undermined by positive developments in the race for a coronavirus vaccine. The aggressive roll-out of vaccination programmes have continued in the UK and US. As a result, there is widespread optimism that the punishing lockdowns are over for good.

With infection rates falling in Europe and the increased numbers of people being vaccinated, this optimism has reason to continue.

Christine Lagarde, European Central Bank (ECB) president, said: during a speech on economic recovery:  “Recovery in the eurozone is faster than anticipated six months ago, mostly due to a rapid vaccination campaign.”

Trade euro/US dollar – EUR/USD chart

Euro / US Dollar
Daily change
Low: 1.12745
High: 1.13253

US dollar forecast: retail sales grow

US retail sales defied expectations in August, as reported by the Department of Commerce. Before the results came out, analysts at ING predicted sales to fall 1.5% from last month due to auto sales plunging to 11.5%.

However, in spite of fears that the Delta variant would stop people from spending, sales from restaurants and retailers grew 0.7% in August. This is a huge leap from July, when sales fell by 1.8%. Removing the drag from cars, sales would have risen 1.8% last month.

The strong report lifts prospects for the Fed to taper policy more quickly. The results also suggest early signs of economic upturn.

Weekly jobless claims, however, were less positive. According to reports from the US Department of Labor, claims increased from 332,000, which exceeded the Dow Jones estimate of 320,000. Regardless of this jump, claims have been more than halved since January 2021.

Continuing claims also fell to 2.7 million, a new low since Covid-19 hit.

Despite this promising news, Biden’s vaccine mandate has been undermined by economists at Goldman Sachs who suggest it will have a limited impact on the economy. Their research found the vaccine programme may only end up applying to “about 25 million currently unvaccinated working individuals”.

Despite these concerns, Goldman Sachs’ economists predicted that by mid-2022, the vaccination rate could reach 82% of American citizens.  

ING forecast

ING has recently amended its 2020 forecasts on USD as a result of the Fed’s earlier-than-expected tightening of monetary policy. The Dutch financial institution has adjusted its previous prior end-2021 EUR/USD forecast of $1.28 down to $1.23.

During the second quarter of 2022, ING analysts expect to see the US dollar begin to rally more broadly.

USD forecast revision – Goldman Sachs

In June, Goldman Sachs economists also revised their USD/EUR forecast.

The Wall Street giant projected the dollar to hit $1.23 on the six-month horizon, amending its previous forecast of $1.27, while its one-year point target was down to $1.25 from $1.28 in its prediction earlier this year.

Last month, Goldman Sachs economists forecast the Fed will announce the beginning of dialling back its bond purchases in November, predicting the central bank will start reducing purchases by $15bn per meeting.

The investment bank increased odds the central bank would announce the beginning of the end of quantitative easing in November from 25% to 45%.

Trade DXY US Dollar Index – DXY price chart

DXY US Dollar Index
Daily change
Low: 96.0582
High: 96.3432

Final thoughts

The USD remains subject to high levels of volatility – and with so many unknowns, the direction a USD prediction could go over the longer term remains to be seen.

As the Covid-19 pandemic remains under control, yet far from over, and as investors await more news from policymakers, only time will tell what direction that US dollar news will move.

Trade USA 500 – US500 price chart

USA 500
Daily change
Low: 4499
High: 4598


It is difficult to say what will happen to the US dollar in 2022. The USD remains subject to high levels of volatility – and with so many unknowns, the direction a USD prediction could go remains to be seen. As investors await more news from US policymakers and with the spectre of Covid-19 still hanging over the world, only time will tell what direction that US dollar news will move.

Although there is some scope for optimism in USD, the currency’s long-term direction remains uncertain and is dependent upon a variety of factors, such as the continuing impact of Covid-19 on global economies and the US Federal Reserve’s monetary policy. Remember to do your own research and don’t invest more than you can afford to lose.

USD can be traded at a range of different exchanges, including Always remember: your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money.

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