TOKYO -- Investors in global financial markets are starting to put their money in places where rollouts of COVID-19 vaccines have made the most progress.
The British pound and the U.S. dollar have both seen marked rises since the beginning of the year as investment money flows into the two countries, which are ahead of other big markets in terms of coronavirus immunization. Meanwhile, currencies in Japan, the eurozone and some emerging economies have been limp over the same period as they lag behind in vaccination efforts.
This trend, taking place against a backdrop of still-raging coronavirus infections, reflects strong expectations among investors that as more people get their shots economies will recover quickly.
Nikkei examined the change in exchange rates between Jan. 4 and April 9 for the 25 currencies comprising the Nikkei Currency Index, comparing them against COVID-19 vaccination rates in specific countries and regions.
Among the currencies of large economies, the pound and the dollar have posted particularly strong gains, rising 2.6% and 1.4% respectively, since the beginning of the year.
Earlier this month, the pound rose above 153 yen, its highest point against the Japanese currency in about three years. It also reached its highest level against the euro in about a year, with the euro sinking below 0.85 pound. The British currency was hovering at high levels in Tokyo trading on April 14.
The pound and the dollar have both strengthened since the beginning of the year as the British and U.S. coronavirus vaccination campaigns have picked up steam. According to a joint tally by Nikkei and the Financial Times, as of April 13, the U.K and the U.S. are among the top countries in terms of the number of inoculations administered per 100 people, at 59.7 and 56.4 respectively. Most of the pharmaceutical companies developing coronavirus vaccines are American or British.
"A linkage can be seen" between vaccination and a currency's strength, said Daisuke Karakama, chief market economist at Japan's Mizuho Bank. As Eiji Kinouchi, chief technical analyst at Japan's Daiwa Securities, points out, "The proliferation of vaccines affects expectations for a restart of the economy."
In the U.S. and the U.K., operating restrictions on bars and restaurants have been eased, and the Purchasing Managers' Index for the service sector is hovering above the boom-or-bust threshold of 50. If personal consumption grows due to a pickup in in-person services, that will help lift economic growth.
In stark contrast to the pound and the dollar, the currencies of countries that are lagging behind in coronavirus immunization have declined noticeably since the beginning of the year. Japan has just begun to vaccinate elderly people, with only 1.3 people per 100 vaccinated so far. Among major currencies, the yen has fallen particularly sharply since the beginning of the year, dropping 4.4%.
The euro has also slumped, slipping 1.1%, as big European Union nations struggle to get their vaccine programs on track. The inoculation rate is 21.9 per 100 people in Germany and 21.5 in France.
Speculation has grown in currency markets that the governments of countries purchasing vaccines will move to sell their own currencies and buy the pound and the dollar. This has also contributed to the rise of the British and U.S. currencies and the decline of the yen and the euro.
A similar tend can be seen among the currencies of emerging economies. The coronavirus vaccination rate in the United Arab Emirates is among the highest in the world. The number of vaccinations administered per 100 people in the Gulf state stands at 92.2. The UAE's currency, dirham, has risen 2.2%.
Meanwhile, Brazil's real and Russia's ruble have fallen 5.5% and 2.2%, respectively. In Brazil, just 12.7 people per 100 have been vaccinated against COVID-19. In Russia, the figure is 9.8.
There are also concerns that a stronger dollar will weigh on the recovery of emerging economies burdened by large dollar-denominated debts.
Stock investors are also beginning to favor markets where government vaccination programs are having more success. Since the beginning of the year, the benchmark share indexes in Singapore, the U.S. and the U.K. have risen 12%, 10% and 7%, respectively, while those of emerging economies that have not made as much progress in vaccine rollout efforts, such as India, Brazil and Indonesia, have performed relatively poorly. Their main share indexes have edged up only 2%, 1% and 1%, respectively.
The spread of vaccines and the speed of economic recovery are also likely to affect the monetary policies of central banks. Federal Reserve Bank of St. Louis President James Bullard said on April 12 that the U.S. central bank could consider winding down quantitative easing if the country's vaccination rate begins to reach 75% or 80%.
In the U.K., market speculation about the introduction of a negative interest rate policy has receded. There is also a view that investors who expect monetary policies to normalize are buying the British and U.S. currencies.