Goldman Sachs says sell the dollar due to the increasing odds of a Biden-led blue wave and progress on COVID-19 vaccine

• Investors should sell the dollar, as the chances grow for a clear win by Democrat candidate Joe Biden in the November presidential election and for the development of a successful COVID-19 vaccine, Goldman Sachs said in a note on Friday.
• Strategists led by Zach Pandl said: "Although there are uncertainties around both, the risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome—a win by Mr Trump, combined with a meaningful vaccine delay."
• Goldman said these two events could prompt the dollar to fall to its 2018 lows.
• The bank recommends selling the dollar against a currency basket made up of the South African rand, Indian rupee and the Mexican peso and advises buying the Australian and Canadian dollars and the euro.
• Visit Business Insider's homepage for more stories.

Investors should sell the dollar, as chances grow for a decisive win by Democrat Joe Biden at next month's election and as progress continues towards an effective vaccine against COVID-19, Goldman Sachs strategists said on Friday.

Strategists led by Zach Pandl said in a note the two key drivers for the currencies are now the Democrats taking control of both Congress and the Senate in a Biden win on November 3 and progress on a vaccine.

"Although there are uncertainties around both, the risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome—a win by Mr. Trump combined with a meaningful vaccine delay," Goldman said.

Goldman said the chances of a so-called "blue wave" have risen to more than 60%, based on Biden's growing lead over President Donald Trump in the polls.

Read more: GOLDMAN SACHS: Buy these 15 stocks set to deliver the strongest possible profit growth and subsequent returns through year-end

"In our view, a "blue wave" US election and favorable news on the vaccine timeline could return the trade-weighted dollar and dollar index to their 2018 lows," the bank said.

The US dollar index, which tracks the strength of the greenback against six other major currencies, has dropped around 5% in the last six months and is around 5.3% above where it traded in January 2018.

Goldman suggests investors should short the dollar against a volatility-weighted basket made up of the South African rand, Indian rupee and the Mexican peso, as well as buying Australian and Canadian dollars and the euro.

Read more: 'The largest financial crisis in history': A 47-year market vet says the COVID-19 crash was merely a 'fake-out sell-off' — and warns of an 80% stock plunge fraught with bank failures and bankruptcies

"The wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets," Goldman said.

Moderna and Pfizer, two front-runners in the race to develop a COVID-19 vaccine, are showing steady signs of progress, Goldman said.

Moderna has indicated its first interim analysis of its phase 3 trial should be available by November and the company's CEO, Stéphane Bancel, told the Financial Times earlier this month its vaccine is likely to be ready for use in late March, or early April 2021.

Meanwhile, Pfizer said the company expects to have a "conclusive readout" on the efficacy of its vaccine trial by the end of October.

Read more: The global investment strategist at a $44 billion ETF shop explains why the pandemic-fueled boom of online retail is set to accelerate — and shares 5 stocks to watch other than Amazon ahead of its Prime Day