A massive volatility was observed in the currency market due to the active development of the COVID-19 vaccine by the world's largest pharmaceutical companies. This news has been a hot topic recently. Therefore, experts find it hard to predict the dynamics of key currencies, in particular the EUR/USD pair.
Analysts do not exclude that if the vaccine is successfully introduced, the dollar bears will gain an advantage. A similar scenario is possible for the euro bulls. Over the past weeks, the market has been hoping for an effective vaccine against COVID-19, closely following the development and testing of leading pharmaceutical companies. However, the situation is so far developing in favor of the coronavirus.
The current instability provokes strong fluctuations in the currency market. In this situation, experts' opinions were divided: some believe that the market will continue to rally and the dynamics of the major currencies will not suffer, while others are inclined to believe that the market will acquire "bearish" features that will remain for a long time. BUt there is only one issue do analysts' assessments coincide: this situation has an extremely negative effect on the dynamics of the US currency.
Experts have repeatedly emphasized that the key factors for the USD are the US presidential elections, a breakthrough in the creation of a vaccine against COVID-19 and the Fed's current monetary policy. Citigroup's current strategists believe that the general macroeconomic background is very important for the US dollar. Based on their forecasts, the indicated currency will become cheaper by 20% next year. The driver of this decline will be the widespread availability of COVID-19 vaccines. Many consider the estimates of analysts at Citigroup more "bearish" than the forecasts of other experts, who expect it to fall by 3% by the end of 2021. We should recall that the dollar fell by 1.8% this month, which is clearly plummeting over the past six months.
Moreover, Citigroup experts said that spreading the vaccines against COVID-19 will lead to dramatic changes in the dollar's dynamics. These changes are equivalent to those recorded in the 2000s. It should be noted that at that time, the price of the USD noticeably dropped. So, it is likely that the use of vaccines will give new impetus to the global economic recovery. In such a situation, many investors will lose interest in the safe haven currencies, primarily the dollar and the yen. Experts believe that Fed's soft monetary policy is also another negative factor that affects the dollar's dynamics. It provides introducing low rates that do not suit most investors.
In case of a negative scenario for the US dollar, the euro will win. Societe Generale experts believe that the growth of the European currency is facilitated by a long-term reduction in spreads between the yield of the main and peripheral government bonds of the eurozone. They are confident that the current high of the euro at 1.1920 may be the last border before a new peak at 1.2000. Many experts consider the growth in risk appetite and bond yields as positive factors for the EUR/USD pair. Yesterday, the classic tandem added 0.1%, reaching 1.1843. Today, it traded in the range of 1.1857-1.1858, slightly exceeding the previous indicators.
With the stabilization of the economic situation in the world and further easing of the Fed's monetary policy, experts believe that the pace of economic growth in the US will lag behind other countries. They also warn that this poses a threat to the dollar. If this scenario comes true, many investors will leave US assets. At the same time, interest in international assets will grow, and capital will flow in this direction.
Meanwhile, short and medium term prospects are important in 2021, especially for the dollar "bears", which are often on the same wavelength with the euro "bulls". These are mainly related to the successful introduction of the COVID-19 vaccine, which is expected to support the global economic recovery.
