International Economics

<< N°167

Issue Q3 2021  
FX markets’ reactions to COVID-19: Are they different?  
Walter Bazán-Palomino
Diego Winkelried
In this paper, we empirically investigate the impact of the COVID-19 pandemic on FX markets. We find important differences between COVID-19 and previous high-risk episodes: the Global Financial Crisis, the Swiss National Bank's removal of the Swiss franc/euro floor, and Brexit. Contrary to these episodes, the USD did not show any safe haven characteristics during the pandemic. Furthermore, the estimated volatility and non-parametric value-at-risk of three currency portfolios indicate that COVID-19 was not as risky as previous stressful events. We provide evidence that investors could minimize COVID-19 risk by investing in the Canadian dollar and the Japanese yen, and by reducing their exposure to European currencies.

Currency portfolios ; Volatility ; Diversification ; COVID-19 ; Keywords
F31 ; G15 ; G18 ; JEL classification
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