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The dollar will weaken even if the US economy starts to gain momentum
The dollar’s decline may become the biggest since early 2001, analysts predict.
As a result of the emergence of an effective vaccine against the COVID-19 coronavirus and the subsequent recovery of the world economy, the US dollar may fall by 20%. It is reported by the Financial Times.
It is indicated that banks, which already had negative forecasts for the dollar next year, worsened their expected performance in the context of the appearance of new clinical trials of vaccines. Wall Street analysts expect the dollar to “fall” with the arrival of the vaccine as confidence in the global economy increases.
“We believe that the vaccine will trigger a bear market, allowing the dollar to follow a path similar to the one it took in the early to mid-2000s. Could the dollar fall 20 percent next year? We believe it will.” said. Citi Bank Analyst Calvin Jie.
Goldman Sachs spokesman Zach Pandle believes the dollar will weaken even if the US economy begins to gain momentum.
“Even if the US economy performs well enough, we believe the dollar could weaken significantly as investors seek higher returns outside of the US and emerge from the safe havens they have been in during the COVID period,” added.
Morgan Stanley cross-assets expert Andrew Sheets forecasts a 4% drop in the dollar index and expects the currencies of Norway, Sweden, New Zealand and Australia to rise as the vaccine becomes widely available.
“We are in ideal conditions for risk assets to rise, the weaker dollar and stronger upward-sensitive currencies to rise at the end of the year,” agrees George Saravelos, head of currency research at Deutsche Bank.
If the dollar falls 20%, this fall will be the largest since the beginning of 2001. But then the 33% fall took several years, continuing until the financial crisis of 2008. Demand for other currencies in emerging markets grew rapidly as that investors followed low interest rates. The trend was stopped by the global crisis.
It was previously reported that the dollar lost its place as the main currency in the international interbank payment system SWIFT. The decline in the share of dollar payments is associated with the depreciation of the US currency, which has lost 11% of its value since March 2020.
Also this week it became known that the yuan rose against the dollar to a high since 2018. This was due to investors’ optimism about the outlook for the Chinese economy, which is recovering rapidly from the COVID-19 epidemic.
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