How Will the COVID19 Vaccine Impact Stock Market and USD? 4 Important Points

Introduction to COVID19 Vaccine Impact Stock Market and USD

The COVID19 pandemic shook the world last year, and the global population eagerly awaited a vaccine that could combat the virus. Developing a vaccine takes years, but the pandemic brought together people of the world in more ways than we know. Countries raced against time fully committed to developing a COVID19 countermeasure. Now that COVID19 vaccines are available to the world, how will they impact the stock market and currency trading? Is there going to be any effect on the US dollar? These are just some of the questions that are troubling many across the globe.

Implications of the vaccine on the stock market

The outbreak of the pandemic in the early part of 2020 caused nation-wide lockdowns globally, especially in the second quarter of the year. The pandemic caused global stock markets to fall drastically in just a matter of days.

In the third quarter of 2020, after witnessing a few weeks of lockdown, the markets began to bounce back. The Chinese stock markets surged above their pre-pandemic levels, recording a growth of 4.9% in Q3. Even the US economy grew at a strong pace in the third quarter. According to the Bureau of Economic Analysis of the US Dept. of Commerce, the Q3 GDP rebound was record-breaking, but it did not fully reverse the initial massive decline, leaving GDP 2.2% below its Q1 level. The US economy bounce-back was largely attributed to tech giants like Google, Netflix, Apple, Amazon, and Facebook, which saw a significant increase in the demand for their services and products because of the lockdown.

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When Pfizer and BioNTech announced the development of the COVID19 vaccine in November last year, global stock markets got a big boost. As the world moves into the second quarter of 2021, vaccines have become more easily available. It looks like that daily life may return to normal, the normal we all once knew. However, the same may not be true for the market.

Effect of the Coronavirus vaccine on global stocks

When the Coronavirus vaccine was introduced in November last year, the Dow Jones Industrial Average closed over 30,000 for the first time ever. NASDAQ and the S&P500 were also on near all-time highs.

As lockdowns are lifted worldwide and the vaccine is made available to the world population, market experts expect to see a rotation out of “stay at home” stocks and a return to value stocks. However, as the Federal Reserve and other central banks worry more about inflation in the third and fourth quarter, stocks may begin to turn lower.

The demand for manufacturing is expected to rise as more and more people receive the vaccine. Travel will resume and airlines and cruise ships are expected to return to normal operations. This could boost the demand for crude oil all over the world.

Impact of the COVID19 vaccine on the USD

The widespread distribution of the vaccine, stimulus packages, and monetary easing was thought to potentially cause the weakening of the US dollar. According to Citibank, the US dollar could weaken as much as 20%.

However, according to a Bloomberg study, of all the countries leading the fight against COVID19, only one saw their currencies gain against the dollar in January. Despite elevated case rates, the UK’s vaccination progress propelled the pound higher, while chaotic distribution in the European Union weighed down the Euro. The US dollar has defied expectations that it would weaken even as the country grapples with varied infection and vaccination rates.

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The global pandemic has truly changed the currency trading landscape. Market experts are no longer looking at central bank rate outlooks or growth differentials as drivers of currency trading strategies. Instead, they are looking at the growing correlations between vaccinations and forex for trading signals.

Many traders are of the view that defeating the virus is key to a country boosting its economy, and thereby strengthening its currency. Even though the US continues to register high numbers of Coronavirus cases despite the positive impact of vaccines, the dollar has strengthened since the vaccine rollout kicked off in earnest in mid-December.

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Looking ahead

The global pandemic has had a profound impact on financial markets and currency trading and may continue to do so for a long time. Prospects for recovery of the global economy have improved with the news that several vaccines have proved effective in trials and may become available to all by mid-2021. Growth projections are almost uniformly confident on the rebound in 2021; as soon as a successful vaccination program enables the economy to open up, the normal spending and consumption patterns are to return.

However, the Coronavirus crisis is far from over. The economic outlook depends a great deal on containing the spread of the virus to avoid stricter restrictions by national and state governments, and on new policy measures to support the economy.

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