Rabobank Predict Euro-Dollar Pullback in First Quarter, say Vaccine Rollout Concerns to Weigh

- EUR/USD eases back from highs
- More downside possible says Rabobank
- Slow vaccine rollout to contribute to EUR decline

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• EUR/USD spot rate at time of writing: 1.2189
• Bank transfer rate (indicative guide): 1.1760-1.1850
• FX specialist providers (indicative guide): 1.2105-1.2123
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A Dollar comeback and disappointing vaccine rollout in the EU is expected to push the Euro-to-Dollar exchange rate (EUR/USD) into retreat in the first quarter of 2021, according to analysis from Dutch-based leader and international financial services provider Rabobank.

"The news flow regarding the likelihood of US fiscal expansion, growth and interest rates has brought sufficient uncertainty to trigger some profit-taking in the currency pair," says Jane Foley, Senior FX Strategist at Rabobank.

The Euro hit a high of 1.2348 last week as the currency tagged onto a global equity rally and went higher amidst an atmosphere of bullish investor confidence.

This confidence has however faded at the start of a new week, contributing to a softer EUR/USD exchange rate with the pair at 1.2186 at the time of publication.

"We do see scope for a correction in EUR/USD in the current quarter as investors come to terms with the implications of a new administration and some of last year’s short USD and long EUR positions are shaken out," says Foley.

U.S. political risks are likely to remain elevated in the short-term, amidst weekend news that Democrats in the U.S. are set to pursue the removal of President Donald Trump from office ahead of the scheduled month-end transition to the Joe Biden presidency.

The move risks inflaming an already volatile political landscape in the U.S., which could give investors reason to pause and seek out the safety of the Dollar, Yen and Franc.

Turning to the Euro, concerns of a slow rollout of the covid-19 vaccine across the European Union remain.

"Because of the delay in ordering the Biontech vaccine, it will not be possible to achieve sufficient immunity against the coronavirus in the EU population until spring," says Dr. Jörg Krämer at Commerzbank.

"Other pharmaceutical companies are not expected to close the vaccine gap until the autumn. This prolongs the economic uncertainty," adds Krämer.

Concerns over the slow start to the programme in countries such as France - where significant bureaucratic challenges have slowed the rollout - have added to a sense that the region won't be able to free itself from Covid-19 in the near-future.

"News that the EU has been very slow to roll-out a vaccine programme many unsettle EUR bulls. This may further impact the Eurozone’s recovery prospects at a time when several countries including Germany have announced fresh restrictions to contain the spread of Covid-19," says Foley.

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As of Friday, 80,000 French citizens had been vaccinated against the coronavirus so far. In comparison, Germany has done hundreds of thousands of inoculations but even here concerns are elevated that the rollout is too slow.

Germany has set up hundreds of vaccination centres in sports halls and concert arenas and has the infrastructure to administer up to 300K shots a day, Health Minister Jens Spahn said.

But Reuters reports the majority are standing empty, with most states not planning to open centres until mid-January as they prioritise sending mobile teams into care homes.

"In view of the uncertainly about the news around covid-19, the various restrictions, the vaccine roll-out and indeed the degree and effectiveness of any fiscal policy responses there is every reason to suspect that volatility in EUR/USD could be high in the coming months," says Foley.

While Rabobank are looking for a pullback in EUR/USD in the first quarter of the year, the weakness of real interest rates should be sufficient to keep the U.S. Dollar on the back foot through most of the year.

Foley and her team will be looking for any changes of this front before calling for a broad-based, sustained recovery in the Dollar.