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
Date Written: October 12, 2020
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: Suggested Citation