The hopes for a global vaccine distribution to fight the pandemic will help humanity but could hurt the U.S. dollar. Though other analysts weren’t so dire, Citibank said the dollar could see its value fall as much as 20% next year.
“When viable, widely distributed vaccines hit the market, we believe that this will catalyze the next leg lower in the structural USD downtrend we expect,” Citi said Monday in a research note. “Given this set-up, there is the potential for the dollar’s losses to be front-loaded, with the USD potentially falling by as much as 20% in 2021.”
The consensus of other strategists who forecast a gauge of the currency is that it will fall only 3% through the final quarter of 2021. A Bloomberg measure of the greenback is down 1.8% this month and has weakened for six of the last seven months. The Citi view is also largely based on the U.S. central bank keeping policy settings easy even if inflation expectations rise.
Strategists have suggested for several months that the combination of the election, vaccine advancements and the policy decisions of the Federal Reserve would hurt the U.S. currency.
The election did not become a point of momentum for the dollar to weaken, but Citigroup says the rest of the world likely will recover more quickly as investors choose to get out of U.S. assets and into international assets.
The Bloomberg dollar index, down 11% from March, came under additional pressure Monday when Moderna said its late-stage clinical trial produced a vaccine that was 94.5% effective in preventing COVID-19, joining Pfizer-BioNTech with results much better than expected.