This week, we focus on the evolution of the dollar against the euro, first because it is one of the biggest variations of the recent period, and secondly because it naturally has more implications than any other currency pair for Europe. Several economists see the single currency at $1.25 by the end of next year.

• The pound at a one-year high against the dollar

The pound sterling (GBP) touched $1.35 this week, a first since December 2019. A rise that is based on the hope of a Brexit agreement, at the end of an interminable soap opera that has exhausted the two groups of negotiators. The poker game is coming to an end, which does not prevent last-minute bluffs, like the message of the France threatening to exercise its right of veto in the event of an agreement deemed too favorable to London.

Since the beginning of November, GBP and EUR have been rising against the USD

• The euro goes up or the dollar goes down, it depends

The big shift of the week is therefore for the EUR against the USD, in line with the predictions of the majority of market participants. The EUR/USD pair moved from the 1.19 zone to the 1.21 zone in a few days. The short-term explanation is relatively simple: markets are waiting for a big fiscal effort in the United States to revive an economy that is showing signs of plateau. The ECB must certainly announce an expansion of its support program, but it is the American plan that focuses attention and weighs on the greenback. "Reports that the EU intends to advance its recovery fund without the endorsement of Poland and Hungary is a strong signal for the euro," said a foreign exchange specialist.

From a more fundamental perspective, "the powerful combination of a Biden gain and advances in vaccines has led to an accentuation of yield curves and pushed investors out of the yield curve, and the dollar," says ING's economics team, which forecasts an additional 5 to 10% decline in the dollar in 2021, "because the Fed is letting the US economy get carried away". The Dutch bank-insurer expects the return of the theme made popular by the good word of a former head of the US Treasury, according to which "the dollar is our currency but it is your problem". "These words will resonate in Frankfurt at the ECB meeting on December 10. The good news for the ECB, however, is that due to the general decline in the dollar – including Asia – the trade-weighted euro has barely moved," ING concludes.

As we will have understood, the decline of the dollar this year remains one of the most consensual "trades" on the market. But what are its consequences? Some answers with John Plassard, the tireless economist at Mirabaud Securities. First, it's a boost to the U.S. manufacturing sector. Secondly, it is an inflationary risk (the cost of imports increases) and it improves the state of the current account of the United States. In addition, it is expected to have a positive effect on employment and growth (increased production and increased reliance on domestic demand since sourcing from abroad is more expensive). John Plassard also points out that currencies pegged or partially pegged to the dollar will be under pressure. Finally, China's competitiveness will be degraded, which is not without consequences for a country so export-oriented. The economist is targeting 1.22 for the pair at first, then 1.25.

• Cross-tabulation of major currency pairs