The Strategist

Citigroup expects 20% fall in the dollar in 2021

11/18/2020 - 03:24

The dollar may fall by 20% next year, Citigroup strategists warned. The weakening of the US currency will be helped by the success of vaccine developers and the recovery of the global economy.

The dollar is likely to fall by 20% in 2021 if coronavirus vaccines become widely available and help restore international trade and economic growth. This forecast was made by Citigroup Bank, Bloomberg reports. If the forecast comes true, it will be a record drop since 1985, when the DXY index, which tracks the ratio of the US dollar to a basket of six major currencies, fell 18.5% over the year.

In addition to breakthroughs in COVID-19 vaccines, the dollar will also be hit by the cautious policy of the US Federal Reserve, the bank notes. It points out that as the global economy normalizes, investors will move from US assets to other markets. 

The Bloomberg Dollar Spot Index, which reflects the movement of the dollar against ten other major "trading and liquidity" currencies, fell by about 11% from the peak of the crisis in March, the agency notes. The index came under additional pressure on Monday after the news of the nearly 95% efficiency of the Moderna vaccine was published. 

The spread of the vaccine will cause the dollar to follow the same path as it did in the early and mid-2000s, according to Citigroup strategists. The American currency was falling for several years then, reminds Bloomberg. Citigroup stresses that China's accession to the World Trade Organisation was the catalyst for the fall in 2001. It "contributed to a wave of globalization, increasing international trade and leaving the closed US economy behind".