The U.S. dollar lost ground to its developed-market peers in November, and currency strategists expect further weakness into 2021 as the Biden administration moves into the White House and coronavirus vaccines are developed.
All nine of the dollar's peers in the so-called G10 gained on the dollar in November, led by the Norwegian krone, which gained 7.09% on the dollar, and the New Zealand dollar, which gained 5.93%.
"We expect the dollar weakness to remain the theme for 2021 as investors add weights to their reflation trades and Biden's presidency should make for a less unpredictable geopolitical environment," said Francesco Pesole, a foreign currency strategist with ING.
The Norwegian currency was boosted by recovery in the oil market, and the New Zealand dollar got a lift from repricing of negative rate expectations following a "hawkish shift" by the Royal Bank of New Zealand at its last meeting, Pesole said.
The U.S. dollar, which lost ground to six of its nine G10 peers in October, has fallen against most of the other nine G10 currencies in seven of the past eight months.
The dollar's latest underperformance in November was largely a function of a "market-friendly" U.S. election outcome, in which Democrat Joe Biden won the presidency but Republicans appear likely to hold on to the Senate, as well as positive news on coronavirus vaccine development from Pfizer Inc., Moderna Inc. and others, Pesole said.
"Those two factors came into play in an environment that was already assisting a benign dollar decline thanks to the lower-for-longer Fed pledge and the sustained rally in global equities," Pesole said.
The S&P 500 jumped nearly 11% in November, its best performance for that month since 1928, while Federal Reserve officials backed their program of purchasing $80 billion in Treasury securities and $40 billion in mortgage-backed securities each month.
Further strength in equities and a continuation of "loose" Fed policy will likely weaken the U.S. dollar further, said Lee Hardman, a currency economist at MUFG.
"It will get worse for the dollar in the near term," Hardman said.
The Dollar Index, which measures the U.S. currency against a basket of six peers, fell by 2.3% in November and as of Dec. 1 was trading at its lowest point since March 2018.
"I think we will see further weakness for the US dollar because of momentum selling," said Fawad Razaqzada, a market analyst with ThinkMarkets. "Further ahead, it all depends on how the global economy evolves. For as long as recovery hopes remain alive, the upside should be limited for the dollar."