Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Dollar Down, With ‘Twin Deficits’ Likely to Extend Dollar Weakness Into 2021

ForexDec 30, 2020 09:00PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Gina Lee – The dollar was down on Thursday morning in Asia. It ended 2020 on a down note over bets that a global economic recovery in 2021 will pull money into riskier assets, even as the growing U.S. ‘twin deficits’ of a huge budget increase and trade deficits argue for an ever-cheaper greenback.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.06% to 89.498 by 8:54 PM ET (1:54 AM GMT). The dollar saw its lowest level since April 2018 and is down 7.2% on the year.

Hopes that 2021 will be better than 2020 have led to a retreat from the safe-haven dollar, with investors increasingly turning to the more attractive riskier assets, particularly in emerging markets. Bears have also been resurrecting the ‘twin deficits’ excuse to short the dollar, with the deficits meaning that more dollars are being printed and moved overseas.

The U.S. stimulus bill, passed by the House of Representatives and the Senate during the past week, also will be negative for the dollar as U.S. debt balloons and President-elect Joe Biden promises even more measures when his administration takes office in January.

Also dampening sentiment for the dollar is the U.S. trade account. The account has been bleeding dollars as the deficit on goods hit a record $84.8 billion in November, with imports soaring past pre-COVID-19 levels. The current account deficit also saw a 12-year high in the third quarter, with a large shortfall in net financial transactions as Americans borrowed more from abroad.

“The U.S. dependence on foreign savings is increasing and at 3.4% of GDP, it is approaching a danger zone where it will become increasingly difficult to attract savings without further dollar weakness, or higher interest rates,” Deutsche global head of G10 FX Alan Ruskin warned in a note.

“The deterioration in the ‘twin deficits’ will do nothing to improve dollar sentiment, even if it does not as yet justify extreme dollar undershooting either,” the note added.

Across the Atlantic, the European Union (EU) is ending 2020 with a huge current account surplus, thanks in large part to Germany. The surplus means that there is a natural inflow to euros through trade, and the euro is at $1.2305, after seeing its highest since April 2018 with a gain of almost 10% for the year. Bulls are looking to see if the euro will hit $1.2413 and $1.2476, two stops on the way to 2018’s peak of $1.2555.

The USD/JPY pair inched down 0.06% to 103.10. Japanese markets are closed ahead of the new year.

The AUD/USD pair was up 0.31% to 0.7708 and the NZD/USD pair gained 0.37% to 0.7230.

The USD/CNY pair inched down 0.03% to 6.5191. Data released earlier in the day in China showed December’s manufacturing Purchasing Managers Index (PMI) at 51.9, down from the reading of 52 in forecasts prepared by and November’s 52.1 figure. The data also showed December’s non-manufacturing PMI at 55.7, also down from November’s reading of 56.4.

The GBP/USD pair edged up 0.16% to 1.3643, levels that have not been seen since May 2018. The pound was boosted by the post-Brexit trade deal struck between the U.K. and the EU becoming law after the Queen gave her approval earlier in the day. The House of Lords gave the bill to approve the deal an unopposed third reading late on Wednesday, after MPs had voted it through by 521 votes to 73.

Dollar Down, With ‘Twin Deficits’ Likely to Extend Dollar Weakness Into 2021

Related Articles

Rouble firms as Biden-Putin talks soothe nerves
Rouble firms as Biden-Putin talks soothe nerves By Reuters - Dec 08, 2021

MOSCOW (Reuters) - The Russian rouble firmed past 74 to the dollar on Wednesday, supported by the central bank's intention to raise rates and an increase in market risk appetite...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
ADIL AKBAR Jan 01, 2021 5:05PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
US dollar will go up from jan first week
Stephen Fa
Stephen Fa Jan 01, 2021 12:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
US Dollar is doomed
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email