In the past couple of years, economists and financial analysts have made many predictions for the future of the U.S. Dollar. Some have been promising, and others have been less than favorable. Currency is dependent on many different factors that change all the time, so it is hard to make a clear judgment on the permanent strength of currencies. However, many banks and strategists believe that the U.S. Dollar will see a spike in value this year, and below we will discuss a few reasons for that belief.
Firstly, the gap between the Federal Reserve and the European Central Bank is changing. The Federal Reserve spent a lot of time recently attempting to push more U.S. dollars into the economy, which was struggling for quite some time. However, officials have suggested to start tapering off this support. Strategists believe that policy normalization could make its way into the economy by the early months of 2022. Along with this, the ECB is working on easing its policies and taking more actions to pump euros into their European economy. The bank will be focusing on reaching their inflation target this year as they have taken on more rhetoric against euro strengthening.
Next, the stimulus package alone has had its boost on the American economy. Very recently, Biden approved an additional $1.9 trillion stimulus package. Even though this fiscal package weakens the American dollar slightly because it is so large, it prompts the possibility of an earlier normalization by the Federal Reserve. Strategists believe the measures will support the strength of the U.S. dollar.
Lastly, economists are predicting faster growth for the U.S. economy. They believe that due to the vaccine’s roll-out and hope for a near end for the Coronavirus pandemic, the economy will begin to rebound throughout 2021. The belief is also that the growth of the U.S. will surpass that of the European Union. Economists are saying that with the economy healing itself, inflation will rise as well, further supporting the strength of the U.S. Dollar. According to Business Insider, Bank of America strategists predict economic growth of 6% in 2021 and 4.5% for 2022.