Looking at the annual performance of currencies against the dollar, we can see that several currencies have fully recouped their losses from March to now and are stronger against the dollar at the end of the year.
We expect global GDP to recover from -5% in 2020 to about + 4% – 4.5% in 2021. Usually periods of synchronized global growth attract free funds from US deposits, with a weaker dollar.
According to the statistics of the Bank for International Distributions, three currencies – EUR, USD and GBP covered 92% of the global transactions for 2019, which is why we will mainly focus on them.


⫸ 2020 showed that the US financial system is still highly dependent on US dollar funding. Under calmer conditions in 2021, purchases in US dollars should develop.
⫸ The change of regime in the White House implies a further decline in the strength of the dollar, observed during the loose fiscal / narrow monetary / protectionist era.
⫸ The Fed’s move to average inflation at this early stage of the recovery cycle means:
(1) negative real rates;
(2) steeper yield curves; and
(3) a weaker dollar.


⫸Macro indicators in the EU and the euro area respectively do not look good, especially the CPI, which is below 2%, but the outlook is optimistic with the ECB’s program to increase targeted long-term refinancing operations (TLTRO) and the targeted anti-crisis program against Kovid – 19 .
⫸The history of the euro is also not attractive, but it is better than the US dollar. The weak dynamics of the EUR / USD is expected to move to / over 1.25 in 2021.
⫸The steps of the EU and the ECB this year have reduced the chances of accumulating Eurorisk premiums next year. Even if the euro strengthens faster, the ECB cannot do much.
⫸For the dollar, the euro should benefit from the spring global and euro area economic recovery, but should not take into account other EU currencies (Scandinavian and CEE).

The combination of a new EU budget and an EU recovery fund has so far raised fiscal concerns (as the emergence of grants leads to solidarity, while the emergence of common bonds points to integration), especially when more fiscal spending called for and supported by international institutions is required. such as the IMF or the OECD and the investors themselves. Although the EU budget and the EU Recovery Fund are still in the process of being reconciled, we expect a compromise to be found soon.


⫸After five turbulent years, 2021 should be a calmer period for the GBP, with policy and the uncertainty of UK-EU relations playing a less prominent role.
⫸The soft trade transaction must send EUR / GBP to 0.88. Expect only a moderate decline in EUR / GBP, taking into account:
(1) reduced premium with limited risk;
(2) Brexit damage to the economy of the United Kingdom.

Trade negotiations between the United Kingdom and the EU are in the final stages (as a result, unknown at the time of publication), we expect the UK and the EU to reach an agreement on a soft trade deal. Although mild in nature (focused mainly on trade rather than services and accompanied by long-term costs associated with leaving the single market and customs union), it should still be enough to provide a moderate boost to the pound, most – already due to the removal of the uncertainty coefficient – the key element that has constantly weighed on the currency over the past few years.
⫸With a reduced risk premium in 2021, GBP should take advantage of the soft dollar.
GBP / USD is expected to rise to 1.42. And less uncertainty means lower GBP volatility.

In the event that the UK leaves the EU without a deal, we expect a deep collapse in GBP – EUR / GBP above 0.95, probably a short touch of parity – given that such an outcome is not expected and there is no risk premium in GBP. This underscores the asymmetric function of the GBP’s response to the outcome of the negotiations – a modest rise in the event of a trade, a deep decline in the absence of a trade.
With this forecast we express our vision for the movements of major currencies, based on current information at the time of preparation.

Sofia, 16.12.2020г.