The US dollar traded sharply higher against all of the major currencies on Monday after Pfizer PFE said their COVID-19 vaccine is 90% effective in preventing the virus. While Pfizer’s vaccine still needs to be submitted for FDA review and is complicated in implementation (it requires two doses and needs to be maintained in ultra-cold temperatures), it confirms that biotech companies are moving in the right direction. With more than 200 coronavirus vaccines in development globally, a dozen in human clinical trials, five out of six vaccines in phase 3 trials, a viable vaccine is right around the corner. After Pfizer’s announcement, Dr. Fauci said that Moderna should have similar results. They use the same technology and are in the same phase of trials. The medical community is also getting better at treating the disease in ways that have diminished the death rate. So while virus cases are soaring across the globe, we are just beginning to see positive vaccine news – more is likely to follow.

The Dow Jones Industrial Average jumped closed up more than 800 points while 10-year Treasury yields reached its highest level since March. The US dollar rose more than 2% against the Japanese Yen and more than 1% versus the Swiss Franc. Its gains against other currencies were limited by risk appetite. While President Trump has not conceded defeat, most see Joe Biden as the President-Elect and took stocks higher before Pfizer’s announcement. Euro and sterling were driven lower by the rising dollar but it was a positive day for the Canadian, New Zealand, and Australian dollars.

European currencies are under pressure because investors are rightfully worried that nationwide lockdowns and record-breaking COVID-19 cases will take a big toll on the region’s economy. Even if a vaccine is developed, it won’t be implemented until 2021. The fourth quarter will be a terrible one for the Eurozone and investors are bracing for that reality. Last week, EUR/USD hit one-month highs on US election uncertainty but we may have seen the top in the currency. EUR/USD should be trading closer to 1.16 than 1.20 and tomorrow’s German ZEW survey could be the nail in the coffin. We expect a steep decline that reflects troubling times ahead for the Eurozone. The European Central Bank is widely expected to lower interest rates next month to avoid a double-dip recession in the economy.

UK labor market numbers are also due for release and according to the PMIs, employment conditions weakened significantly in the manufacturing and service sectors. Like the Eurozone, the UK is in the midst of a strict lockdown and incoming data will remind us why the US government is reluctant to follow suit.

Meanwhile, currencies of countries that have beaten a second virus wave soared alongside the US dollar. In Australia, the number of active coronavirus cases fell below 90. In New Zealand, there were only 4 cases reported in isolation. By successfully controlling COVID-19 outbreaks for a second time, both countries will enjoy stronger recoveries that has led to stronger currencies. The Reserve Bank of New Zealand meets this week and they are widely expected to be less dovish. Compared to other central banks, there’s no urgency to act. Although virus cases are on the rise in Canada, the Canadian dollar hit a 1 year high versus the greenback on the heels of higher oil prices and signs of a steady recovery.