Dollar may crash after COVID-19 vaccine rollout: Citibank
The American bank Citibgroup has predicted that the imminent rollout of vaccines to fight the coronavirus pandemic might cause a major crash in the value of the US dollar.
The bank said in a research note published on Thursday that the dollar could fall as much as 20 percent next year mainly as a result of the a large-scale program to distribute COVID-19 vaccines in the US.
The bank said vaccine roll-out could intensify the negative impacts of ongoing monetary easing policies of the US government.
“When viable, widely distributed vaccines hit the market, we believe that this will catalyze the next leg lower[ing] in the structural USD downtrend we expect ... 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 percent in 2021,” said the bank in its note.
American pharmaceutical companies, including Pfizer and Moderna, have announced that their anti-coronavirus vaccines have proven more than 90 percent effective in clinical trials.
That has raised hopes for the United States as the worst-hit country in the world by the virus as Washington struggles to contain surging infection rates and let the economy fully reopen after months of closures and extensive restrictions.
The greenback closed slightly higher against other major currencies on Thursday with its index standing at 92.43.
The Citi said, however, that the monetary policy of the Federal Reserve to keep rates low, even despite forecasts showing that inflation would rise in the US, could deepen the crash of the dollar.
“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 [Standard & Poor's 500 Index] and USD are rich, versus the rest of the world,” said the bank.
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