The U.S. dollar will remain under pressure in the year ahead, forecasts BCA Research.

“The upturn in the global economy, a renewed widening of the U.S. current account deficit and a Federal Reserve that keeps interest rates near zero will spell trouble for the U.S. basic balance and keep the dollar under downward pressure,” the firm observes in a new research note.

“The Great Recession narrowed the U.S. current account deficit and the deflationary pressures lifted real interest rates. This combination helped support the dollar in late 2008 and into early 2009,” it says. “But with the deflationary impulse receding, real interest rates are falling again. As the U.S. current account begins to widen and diverge with real interest rates, the dollar will face renewed downward pressure.”

“Low real interest rates and a renewed cyclical widening of the U.S. current account deficit should push the dollar lower in the coming months. This dynamic will be in place at least until the Fed begins to normalize interest rates, i.e. for most of 2010,” it concludes.

IE