Potential USD 20% Correction Following COVID Vaccine Release - Citi
(17 November 2020 – Global) The increasing likelihood of a successful COVID-19 vaccine distribution in H1 2021, coupled with unprecedented dovish monetary policy, could result in the US dollar depreciating by up to 20 percent through 2021 according to Citigroup.
Moderna confirmed its experimental vaccine was 94.5 percent effective in preventing COVID-19 based on interim data from a late-stage clinical trial, following Pfizer’s successful report the previous week that surpassed expectations. Citi’s bearish greenback view is also predicated on the view that the US Federal Reserve will maintain a loosening policy stance even if inflation lifts from record lows alongside rising GDP, allowing the US yield curve to steepen.
East & Partners Global Currency Forecast analysis reveals rising uncertainty among CFOs and corporate treasurers as they recorded their largest shift in sentiment ever over a six month period, resetting expectations for the USD against a basket of major currency pairs in some instances by over 20 percent.
“When viable, widely distributed vaccines hit the market, we believe that this will catalyse the next leg lower 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” the US bank stated in a research note.
"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"