2021 forecast: a weaker USD, a higher GDP

Although this year isn't over yet, traders are already looking ahead to 2021 and the outlook for the global economy. Global trading volumes are on the verge of rebounding, so economic growth is expected to resume.

However, there is one condition: the tragic virus situation must come to an end. Recent developments in the fight against the pandemic offer encouraging signs for 2021. Although a vaccine is still a long way off, traders at least have a time horizon for its eventual deployment, so economic calculations are easier to make.

USD weakness remains the theme for next year

Most forecasters see a weaker USD in 2021. While this year has shown that the financial system is still dependent on the USD, an improvement in the outlook for economic growth should lower the USD.

The pandemic has caused significant changes on the USD front. First of all, the Fed has changed its view on inflation. Until the Jackson Hole symposium in August, the Fed considered the PCE or personal consumption spending at the 2% level as its definition of inflation. However, this definition changed with the introduction of the target of average inflation around the 2% level.

The Fed could not have chosen a better time for this change. Due to the virus situation, investor attention shifted from what the Fed had signaled - lower monetary conditions for longer. From that point on, the USD struggled to strengthen against other G10 currencies.

Thus, with just 5 weeks left, the EUR/USD is trading at $1.19, GBP/USD at $1.33 and AUDUSD at $0.73 - levels similar to those of the summer.

The global economy has already recouped some of this year's losses. For example, the Bank of England announced on Monday that the UK economy has recouped about two-thirds of what it recently lost.

This has been made possible by the falling USD. As global trading is mainly dollar-denominated, a weaker USD promotes growth.

This does not mean that the USD will not rise in the future. In fact, it is also possible that the USD will rise before it falls.

This is due to the macroeconomic implications of the Fed's decision and the effects of the pandemic on global growth. Until the changes are felt in the economy, the dollar could still deviate from the downward trend.