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Vaccines against COVID-19 could cause the dollar to drop sharply

The US currency could weaken once the vaccine is shipped.

4 min read


  • This week, two American pharmaceutical companies showed the results of phase 3 clinical trials with their vaccines.
Vaccines against COVID-19 could cause the dollar to drop sharply
Vaccines against COVID-19 could cause the dollar to drop sharply

The widespread adoption of the COVID-19 vaccine will be good news for the world, but maybe not so much for the world. dollar. Bank of America and Citigroup predict that the US currency could fall as much as 20% in 2021.

This week, two US pharmaceutical companies presented the results of Phase 3 clinical trials with their respective vaccines.

The modern biotech company announced that its vaccine is 94.5% effective. Meanwhile, Pfizer announced that its vaccine, developed in collaboration with Germany’s BioNTech, is 95% effective, especially in the elderly.

Investors polled by Bank of America expect a “credible vaccine” to be ready by January 2021.

According to the forecasts of CitibankThe introduction of the SARSCoV2 virus vaccine and the current easing of monetary policy could weaken the US dollar.

“When viable and widespread vaccines hit the market, we believe that this will catalyze the next expected decline in the structural downtrend of the US dollar,” the US bank was quoted as saying. Reuters.

“Given this configuration, there is a chance that dollar losses could be pre-calculated, with the dollar potentially falling as much as 20% in 2021,” the institute added.

Citigroup points to another possible cause of the possible decline in the dollar: betting that the US Federal Reserve will continue to use all available resources and tools to support the economy next year. The Federal Reserve said it would keep rates low even if inflation expectations rise. This could lead to the US yield curve rising as well.

“Given this build, there is a chance that dollar losses could be pre-calculated, with the dollar potentially falling as much as 20% in 2021,” added Citibank / Image: Depositphotos.com

David Woo, strategist of the Bank of America, noted that the longer a vaccine takes to develop, the more likely Europe and Asia are more likely to have new waves of infection, which is an optimistic scenario for the dollar, the analyst said.

In an Aug. 3 report, Woo noted that the short-term decline in the dollar was due to the fact that the vaccine “will be available sooner rather than later.” If the vaccine takes a long time to come out, it is more likely that “liquidity support from central banks will not be enough to prop up financial markets,” he said. This would stimulate risk aversion and benefit the dollar as a “safe haven”.

In the United States, COVID-19 infections continue to rise in some states, hindering the country’s economic recovery. The situation also contributes to the largest drop in the dollar in nearly a decade, recorded last month.

Other factors that predict a complicated scenario for the dollar are negative real returns on some US bonds and the recovery of the euro from a joint European Union stimulus package.

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