There is a lack of close historic parallel to the economic impact of
COVID-19. The COVID19 shock has led to most economies in the Euro area
experiencing exchange rate pressures, enormous job losses and contractions
in output. By recognising that a stable currency has the tendency to
reverse some of these challenges, this study investigates the impact of the
pandemic on the exchange rate of all EU member countries. The main
objective is to find the relationship between the government’s lockdown
measures measured by the Stringency index and monthly exchange rate per the
USD for all EU member countries. Using both a correlation and a Dynamic
Ordinary Least Square (DOLS) model, the results show that as lockdown
measures intensified, countries in Europe lost their competitiveness in the
long-run. In the short-run however, only Cyprus, the Czech Republic and
Greece lost their competitiveness as the lockdown measures intensified. The
results also confirm the asymmetry of shocks in Europe, further questioning
the benefits for countries seeking to adopt the Euro.