Sterling Drops To 4 Month Lows
- Posted by currencies in Bank of England, Brexit, Currency, Dollar, election, EUR, GBP, Referendum, Sterling, UK, Uncategorised
- March 3, 2020
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Pound sterling has now hit a four and a half month low wiping out the gains we have had after the signing of the Brexit deal and massive election victory in the space of five days going from highs of 1.20 on the Euro down to now 1.1438.
The main reason being is that investors are taking their money out of their currency as the Corona Virus is set to deliver a massive blow to global growth.
It is important to note that the UK economy itself might be relatively immune to the economic contagion of the virus, but Sterling is not so immune. This is largely because the Pound is propped up by substantial inflows of global investor capital.
Analysts are saying that the Virus won’t necessarily be a huge impact to the UK economy itself but however will and already has have a massive impact on the pound. This is due to the pound mainly being powered global investor capital into the UK. So, when these inflows start to slow down which is now the case now that investors are scared of the impact of the virus.
The pound shows that it is a lot more vulnerable than other currencies.
Markets are now pricing in a rate cut by BoE. The reason being that a Bank of England spokesperson told Bloomberg that the Bank will take “all necessary steps … to protect financial and monetary stability. The bank continues to monitor developments and is assessing the potential impacts. Whilst talking about the virus.
The U.S. dollar slipped to a six-week low against a basket of currencies on Monday, as investors bet on the U.S. Federal Reserve easing policy in a bid to counter the negative impact from the spread of the new coronavirus.
USD is now at 6 weeks lows against other major currencies due to investors betting that the FED reserve will easing their policy to counteract the negative impact of the new virus. Jerome Powell also issued a statement on Friday saying that the Fed would “act as appropriate” to support the economy. These comments are what has led to investors believing that they will cut when March 17th rolls around.
Also talks between Britain and the European Union on their relationship after Brexit has now began. However, we do not expect much to happen right now as there are bigger problems in the world to concentrate on. We could even see an extension to the deadline depending on how the virus situation continues.
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