Are Countries (and Economies) that have Responded Well to COVID-19 a Better Bet for Forex Trades?

Forex Trade

After a lengthy period of stability, the global pandemic had a massive impact on forex markets, with the uncertainty and devastating economic impact causing high levels of volatility in the short term. However, around 18 months from the first outbreak, some countries and economies have responded well to COVID and are likely to be a better outlet for trades than others.

Forex investors looking to take advantage of fluctuations in the market can use an AvaTrade bonus to sign up with a reputable broker and then open an account to trade and manage positions daily. By analyzing key signals that can affect currency prices and conducting technical analysis, you can buy currency pairs at the right time to make a profit.

A few factors need to be considered when selecting a currency pair based on the effects of the pandemic, though. The success of vaccination rollouts and the severity of lockdowns are chief among them. These factors are weighted in Bloomberg’s ‘Covid Resilience Ranking,’ which gives traders a broad overview of how well countries have responded to the crisis.

Countries that have been able to implement successful lockdowns while increasing the percentage of adults vaccinated and keeping the economy going despite social distancing restrictions are more likely to be in a better place than countries that have struggled to achieve these objectives.

A positive response increases the strength of an economy, and this generally translates to a stronger currency. A strong economy is defined as one with a high rate of growth, low inflation, and low levels of employment. And when these conditions are prevalent, a currency is likely to be stable, attracting investment and making it more of a haven for forex traders.

In the months following the outbreak, investors gravitated towards the US Dollar (USD), which is traditionally viewed as a safe bet during challenging economic conditions. However, things began to change with news of several successful vaccine trials. This resulted in the Euro (EUR) and British Pound (GBP) making gains against the USD during the final months of last year.

Skipping ahead to summer 2021, many countries are now on track to rebound from the struggles of the pandemic after implementing economic measures that can support growth in the medium to long term. Bloomberg’s Covid Resilience Ranking index shows that all top 20 countries are doing “better,” with Norway, Switzerland, and New Zealand leading the way.

The US is fifth on the current list with a score of 74, which compares favorably with Norway (77.2) in the top spot. More than half of the US population is now vaccinated. The central government is no longer hampering economic and social activity following the end of lockdowns and other stringent restrictions.

When the US was struggling with a soaring number of cases last year, many traders opted to make a profit on the USD/CAD pair because, in comparison, Canada was able to keep daily cases lower for an extended period. Investors are again looking at how countries are setting out a “roadmap to recovery” to determine whether they are worthwhile currencies to buy into.

The UK has performed well on this front despite its initial disastrous response. Despite only being 25th on Bloomberg’s resilience list, the UK has vaccinated the vast majority of its population, and its economic outlook is positive. Data shows that its economy grew at a faster-than-expected rate in June. GBP has risen against the USD this year, and the recent strength of economic data has secured recent gains, according to analysts.

However, the UK’s quarterly GDP is still down from the levels recorded in 2019 before the pandemic, which is a trend that is mirrored in other European countries. According to the economist Samuel Tombs, a weakness in household spending is the issue, but a rebound in Q3 could support further growth.

In comparison, the US economy was only 0.8% lower than its pre-Covid peak, which suggests there might not be as much room for growth moving forward. The data does show that leading European countries, in addition to Canada and the US, have seen their economies improve considerably since a year ago.

To conclude, countries that have been able to drive economic growth in recent months while supporting mass vaccinations and preparing for a post-Covid world are generally better bets for forex trades. However, there are several other factors to consider. Opting for major pairs is a safer option for investors but keeping track of the latest news and GDP updates and analyzing charts and patterns is the best way to identify opportunities for profits.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.