Deutsche Bank argues that COVID-19 vaccine is USD positive

A Friday note from DB on how the coronavirus vaccine will impact on the USD. Its a no question positive for the dollar the analyst argues:

  • If the vaccine fails (DB thinks this is a low probability likelihood) to lead to ‘herd immunity’ it would reverse the risk-on trade and strengthen the dollar
  • But, if the vaccine proves to be effective it will cause the Federal Reserve to tilt to less dovish, prompting a stronger dollar (by pulling forward “not only a retreat in QE, but a rate hike expectations”)
As for timing:
  • the optimistic vaccine scenario “is not likely to be a factor for at least three months”
  • “This leaves a decent time gap of at least 3 months for the market to trade in ‘vaccine smile’ terrain that remains risk-positive and weighs on the USD – where there is great promise of a strong global growth rebound, but without the policy penalty of tighter policy”