Does the Impact of the COVID-19 Pandemic Influence the FX? A Note

Journal of Prediction Markets

17 Pages Posted: 13 Oct 2020 Last revised: 5 May 2021

See all articles by Evangelos Vasileiou

Evangelos Vasileiou

University of the Aegean, Department of Financial and Management Engineering

Date Written: October 12, 2020

Abstract

This note shows that the effective response of a country in its battle against COVID-19 influences the exchange rate of its currency. Particularly, we examine the GBPUSD, AUDUSD and AUDGBP pairs of currency during the COVID-19 outbreak and the results show that the domestic currency of the country which documents more COVID-19 cases in each pair is depreciated against the foreign one. Therefore, a country which cannot effectively mitigate the impact of COVID-19 and whose currency is depreciated may present further economic consequences in the future. Such consequences extend beyond economic recession and may include sovereign and interest rate risk. These findings may be useful for policy makers in order to estimate the cost of the pandemic.

Keywords: Foreign Currency; Health Risk; Pandemic of COVID-19; Health Policy

JEL Classification: F31; G12; I15

Suggested Citation

Vasileiou, Evangelos, Does the Impact of the COVID-19 Pandemic Influence the FX? A Note (October 12, 2020). Journal of Prediction Markets, Available at SSRN: https://ssrn.com/abstract=3709983 or http://dx.doi.org/10.2139/ssrn.3709983

Evangelos Vasileiou (Contact Author)

University of the Aegean, Department of Financial and Management Engineering ( email )

45, Kountourgiotou str.
Chios, GA 82100
Greece

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