LONDON (Reuters) – The widespread distribution of vaccines to combat the coronavirus pandemic and ongoing monetary easing could cause the U.S. dollar <=USD> to weaken as much as 20% next year, Citibank said on Monday.
“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,” the U.S. bank said 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.”
Moderna Inc said on Monday its experimental vaccine was 94.5% effective in preventing COVID-19 based on interim data from a late-stage clinical trial, becoming the second U.S. company in a week to report results that far exceed expectations.
Citi’s bearish dollar view is also premised on bets that the U.S. central bank will continue to keep policy settings easy even if inflation expectations rise with an economy recovery, thus allowing the U.S. yield curve to steepen.
“This is important for FX as when investors begin to rotate into value, they will increasingly rotate out of the United States given valuations on both the SPX and USD are rich versus the rest of the world,” the bank said referring to the S&P 500 stock index <.SPX> and the U.S. dollar respectively.
(Reporting by Saikat Chatterjee; Editing by Tommy Wilkes)