Citigroup analysts said that if the Covid-19 vaccine is widely distributed and helps restore global trade and economic growth, the dollar may begin to fall by 20% in 2021, far higher than the 3% depreciation generally expected by the market.
In recent months, strategists have believed that the U.S. election, vaccine breakthroughs, and Fed policy will cause a serious blow to the dollar. However, the U.S. election is ultimately not a catalyst for the dollar’s sharp fall. Citigroup thinks that the macroeconomic environment will be a bigger factor to promote the dollar.
Analysts pointed out that the catalyst that triggered the multi-year decline in the US dollar in 2001 was China’s entry into the World Trade Organization (WTO). This triggered a wave of globalization, which pushed up global trade and left behind the closed US economy, which has a much lower beta for global economic growth.
Citigroup expects that, in addition to the impact of the vaccine breakthrough, as the Fed will maintain a dovish stance, as the global economy returns to normal, the rest of the world may grow at a faster rate, and investors may shift from US assets to international assets, which will also Put pressure on the dollar exchange rate.
“If the U.S. yield curve becomes steeper due to rising inflation expectations, it will stimulate investors to hedge foreign exchange exposure.”The bank’s strategist said, “In this case, the dollar’s decline may occur early, and the dollar will soon spiral. Fell.”