COVID vaccines’ global availability next year is likely to stabilize the world’s economy and send investors in search of riskier bets that would bring a bigger return than the U.S. dollar, currency analysts are forecasting.
In that scenario, investors will lose interest in the dollar’s safe shelter and the buck’s value will shrink as demand for dollar-denominated investments falls, the banks say. (See related topic, “FOREIGN INVESTORS RUSH INTO CHINA” in this issue’s “GLOBAL ECONOMIC TRENDS” article.)
The dollar’s value has shrunk more than 4 percent this year against a collection of six other currencies as the U.S. Federal Reserve slashed interest rates to revive the shutdown-shocked economy.
The euro has climbed 6 percent against the dollar during that time; the Australian dollar has gained 4 percent on the greenback.
“Vaccine distribution will check off all of our bear market signposts,” Citi analyst Calvin Tse wrote in a recent research note. “Can the dollar decline 20 percent next year alone? We think yes.”
A 20-percent slide in the dollar’s value happened most recently in the first decade of this century, but it took seven years, beginning in 2001 and lasting into 2008 as investors sought out more rapidly growing countries with currencies rising in value.
Any precipitous fall in the dollar’s value would be a result, in part, of its past strength: it gained 16 percent in value in 2014 and 9 percent in 2015, for example, as the Fed kept U.S. interest rates high while other Western economies held rates closer to zero to foster growth.
“We are in the perfect environment for a rally in risky assets, a weaker dollar, and stronger growth-sensitive currencies through the end of the year,” George Saravelos, global head of Deutsche Bank’s currency research, told the Financial Times.
Goldman Sachs thinks the dollar will lose 6 percent of its value in 2021, the bank’s research analysts have told investors. Investors collectively expect the dollar to shed about 3 percent of its value next year, according to a consensus of forecasts compiled by Bloomberg.
The dollar is likely to fall 4 percent in the short term, with currencies of Australia, New Zealand, Norway, and Sweden likely to rise on a global vaccination campaign, according to Morgan Stanley analyst Andrew Sheets, the Times reported.
The currencies of Brazil, Russia, and South Africa also are likely to gain value, Sheets said in a research report.
He expects the euro to trade at $1.25 by the end of next year; the median forecast for that time is $1.21, according to the Bloomberg report. The euro’s value in mid-November was $1.18.
The dollar is likely to weaken even as the U.S. economy regains its strength, noted Zach Pandl, co-head of global foreign exchange and emerging market strategy at Goldman Sachs.
The dollar often serves as a gauge of global economic health, losing value during times when investors have more safe choices and prospects for good returns.
TREND FORECAST: While other currencies are rising against the dollar, it should be noted that considering the increasing amounts of cheap monetary methadone and fiscal stimulus that will be flooded into sagging economies, it is anathema that they too are not sinking.
Thus, while currencies are rising while their economies are sinking, we forecast investors will continue to abandon many of them and instead place their bets on rising precious metals and cryptocurrencies.
