Fears of an ongoing pandemic, chaotic Brexit, and another aggravation of relations between Washington and Beijing have somewhat weakened risk appetite and returned demand for the protective dollar.
However, the greenback's profit against this background was limited by the growing confidence that a new fiscal stimulus for the US economy will appear.
MUFG believes that "In the current trading environment, growing speculation about a loosening of US fiscal and monetary policies is supporting risky assets and holding back the US dollar."
While market participants are awaiting congressional approval of a $900 billion package of fiscal support for the economy, it is unclear whether this will be enough to offset the loss of funds to support the unemployed under the emergency programs, which will expire on December 26.
However, doubts remain over whether the Federal Reserve will expand incentives following its next meeting next week.
Chicago Fed chief Charles Evans said on Friday that it will take until spring to see the impact of the vaccine spread and assess the trajectory of the economy.
Minutes from the December FOMC meeting have warned several members that further easing of monetary conditions could have unintended consequences for financial stability.
However, the fact that US stocks are still trading near record highs suggests that investors are sweeping aside these threats on a "worse is better" principle. That is, they are confident that if the situation deteriorates, the FRS will definitely support the market.
This year, the US dollar first strengthened during the pandemic in the markets in the spring and then declined after the Fed flooded the world markets with dollars through a number of instruments to support bonds and corporate loans in the US.
Although at the beginning of this week the USD exchange rate stabilized somewhat, it still remains at its lowest level in almost 2.5 years.
"A lot of people are now wondering if this is just the beginning of the dollar's decline and if there is more sense in this topic," said strategists at TD Securities.
"We expect greenbacks to get cheaper throughout 2021. However, this is unlikely to be a straight line," they added.
ING analysts are also bearish on the outlook for the US currency.
They predict that the USD will fall another 5-10% versus most of its main competitors.
"The main factors behind the decrease in the greenback will be news about the approval and distribution of vaccines against COVID-19, the preservation of cheap liquidity from the Fed and the lack of a regulator's response to rising inflation," according to ING.
As for the short-term prospects, according to Saxo Bank experts, the American currency still has some margin for an increase without a reversal of trends, however, the EUR / USD pair needs to stay above 1.2000 after the ECB meeting this Thursday, so as not to damage the technical forecast for a decline in the dollar. ...
Hopes for the early adoption of the next fiscal stimulus package in the US limit the growth of the protective greenback and support the euro.
On the other hand, new easing measures are expected from the ECB this week. This keeps the EUR / USD bulls from aggressive actions and prevents the pair from strengthening.
The euro will stomp on the spot until the ECB meeting, and then it may rise, ING experts believe.
"Given the significant market expectations regarding further easing of monetary policy by the ECB and the structural decline of the dollar, we can assume that the European regulator will find it difficult to resist these trends and curb the growth of the euro," they said.