Societe Generale Research discusses the USD long-term outlook, and targets the USD Index (DXY) at 86.70 and EUR/USD at 1.27 by the end of 2021.
"We forecast a 5% fall for the Dollar Index (DXY) in 2021, with further losses to come in 2022. We estimate that the dollar is about 10% overvalued in real effective terms as a result of stronger growth and a more currency-supportive monetary/fiscal policy mix than its main counterparts. This year’s dramatic shift in Fed policy has wiped out most of the advantage it can take from monetary or fiscal policy, and as the global economy recovers from the pandemic, we expect that growth differentials will matter less for exchange rates," SocGen notes.
"A 10% adjustment would price in the new policy and economic reality, but this is likely to take time to happen. Apart from anything else, no-one else wants to see their currency appreciate," SocGen adds.