Vaccine Distribution could Cause the US Dollar to Collapse by 20% in 2021

The large-scale distribution of vaccines to combat the coronavirus pandemic and current monetary easing measures could cause the US dollar to weaken by up to 20% next year, according to Citibank.

“We believe that once effective, widely distributed vaccines hit the market, they will catalyze the bottom of the downtrend fork we expect for the US dollar,” reads a US bank research note.

“In light of this configuration, there is a possibility that losses for the dollar are anticipated, with the dollar likely to lose up to 20% in 2021”.

Moderna Inc (NASDAQ: MRNA) announced that the experimental vaccine it is developing has proven 94.5% effective in preventing Covid-19, based on provisional data from the large-scale late-stage trial, becoming the second largest company within a week to publish results that far exceed expectations.

Citi’s expectation of a decline in the dollar is also based on expectations that the US central bank will continue to maintain accommodative policies even in the event of upward expectations for inflation, as a consequence of an economic recovery, thus allowing the ‘steepening’ of the US interest rate curve.

“It is important for forex as when investors start to move towards value, they will start exiting the US, in case the valuations of both the S&P and the dollar are higher than the rest of the world” writes the bank referring respectively to the S&P 500 stock index and the US dollar.

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