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Vaccine rollouts and currency movements

How countries manage their vaccination programs is having a dramatic effect on their currencies.

May 2021

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Some countries, like Israel, are way ahead, with more than 60 per cent of the population receiving at least one dose. The UK, after a stint at the top of the infection table, is also rapidly inoculating citizens, with 50 per cent of the population having received a first dose1. The US is rapidly approaching that figure too, administering close to 3 million doses a day.2

That good news on the vaccine front is filtering through to global currencies.

The Israeli shekel reached its highest point relative to the US dollar since 1996 in January based on the speed of its vaccine rollout, before the Bank of Israel stepped in to push the currency down.3

The British pound has similarly been enjoying a stellar run, gaining 4.5% against the euro in the first three months of this year, as vaccinations sped ahead of European counterparts.

“The UK has done extremely well to ‘go it alone’ in relation to its vaccine program and has not waited around, unlike its European neigbours,” says Chris Dunn, a Treasury Dealer at OFX in London. “The next key test for the UK especially will be to ensure it can continue its rapid vaccination program whilst also taking advantage of its geographical status as an island.”

Traders are backing currencies of countries who are leading the vaccine race on the expectation that the greater the population immune to the disease, the less likely that country is to suffer economically crippling lockdowns.

That has markets attuned to any signs of vaccine stumbles or increased incidences of COVID-19, as official lockdowns, or even unofficial ones — where citizens voluntarily isolate and reduce consumption — are the biggest triggers for negative economic growth. 

“If you look at currency trading data you can see there is a clear pattern indicating that COVID-19 news heavily affected euro/GBP pricing, and other currencies for that matter,” says Dunn.

The Australian dollar, for example, took a knock when the government abandoned its goal to vaccinate the entire population by the end of 2021, citing concerns about the availability of vaccines.4

India’s disastrous second wave has meant the rupee was the only Asian currency to lose value against the US dollar in April.

India is currently recording 350,000 positive cases per day, carrying with it the potential for further mutations of the virus.5 The Lancet COVID-19 Commission Taskforce on Public Health has declared that new mutations are the biggest threat to ending the pandemic, warning that vaccines may no longer be enough to defeat the virus, and that maximum suppression (or further lockdowns) could be required.6

If the new COVID-19 strains, like those originating in Brazil, South Africa and the UK aggressively take hold in other countries — and don’t respond well to vaccines — then those currencies could be in for a shock.

“The main risk to global recovery and financial market optimism going forward is any virus mutation that resists the aggressive vaccine roll-out,” says Sebastian Schinkel, Head of Treasury at OFX.

“This could bring volatility back to the front sit and have an impact on risk sentiment, impacting equities and probably bringing safe haven demand. But if the disease continues to impact poorer countries disproportionately, financial stress might be focused only on currencies from developing markets. Then it will be a matter of how developed countries deal with the new normal.”

With the rollout of COVID-19 vaccines continuing across the globe, we can expect positive or negative COVID-19 news from countries to drive the direction of currencies for a while to come. If you need help making sense of market moves, or just need a little support with the transfer process, our OFXpert team is here to help 24/7. Contact us today.


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