The pace of vaccine deployment around the world is giving investors the opportunity to profit from the $6.6 trillion a day currency market.

According to a Bloomberg study of the 15 largest economies with publicly available vaccination data, of the 5 leading countries in the fight against Covid-19, 4 saw their currencies appreciate against USD in January. Vaccination progress in the UK is offsetting the rate of new Covid-19 infections and is enough to push GBP higher while the slow rollout of a vaccine in the EU is putting EUR in trouble. And these moves have made the picture of the USD more difficult to observe.

As the pandemic changes the landscape of currency trading, one thing is becoming clear: Gone are the days when interest rate prospects and growth arbitrage were prominent drivers of strategies. deal. Instead, it is the implementation of vaccinations in the countries that are leading the trading signals.

Vaccine War Winners

Many traders see defeating the virus as a prerequisite for a country to restart its economy, strengthening the local currency, thereby heightening the importance of a vaccine deployment.

For example, the AUD fell against its peer currency, the NZD, last week after Germany questioned the effectiveness of AstraZeneca's vaccine, which is part of Australia's vaccination program.

But the relationship between vaccines and currency is most apparent in the UK, which ranked near the top in a Bloomberg study of three variables: cumulative progress in vaccinations, speed with the declaration, and the offset of new infections.

Estimated country ranking based on scores of disease and vaccine tracking criteria.

As of Wednesday, the UK had injected 15.8 doses per 100 people, higher than 10.7 in the US and 3.2 in the EU. And this is giving the advantage of shorting EUR against GBP.

It could also boost the dollar because while the US continues to lead the world in new coronavirus cases, this has been offset by the positive impact of the vaccine, since the introduction of vaccination. promoted in mid-December.

Nordea's Martin Enlund sees vaccine divergence as one of the reasons US growth expectations have risen relative to the eurozone, while Standard Chartered strategists Steven Englander and Geoff Kendrick point out that the EU's lag in vaccine deployment is a downside risk to their forecast for euro strength this quarter.

Another perspective.

However, while some traders see the progress of a vaccine as a direct boon for a given currency, others see it differently.

For Brandywine's Jack McIntyre, a rapid vaccine rollout in the US, especially in tandem with one in China could really weaken the dollar. That's because success in these two countries will likely spur a global recovery, keeping investors away from havens like the USD.