THE EFFECT OF COVID-19 ON THE EXCHANGE RATE MARKET AND CURRENCY PRICING
Abstract: The COVID-19 Pandemic has had catastrophic effects across the world. This paper explores the relationship between COVID-19 and the effect it has had on the pricing of exchange rates. This study utilizes daily data from 83 countries from August 1, 2019 - December 1, 2020 to examine whether COVID-19 is a factor in determining the price of a currency. To test this hypothesis the spot rate returns were regressed against percentage changes in total deaths, percentage change in total cases, percentage change in the Oxford Covid stringency index, and fixed effects for days and countries. The results show that deaths is a significant predictor of movements in exchange rates; however, the size of the effect is very small. Thus, this study finds evidence that COVID-19 is a predictor of exchange rates, but would be impractical to implement an effective trading strategy in the exchange rate market due to the small effect.