The British pound fell sharply again on Monday as investors dumped currencies they consider riskier to own amid the coronavirus pandemic.
Sterling has been under pressure because of a massive wave of selling of most currencies other than the dollar, which is the world’s most liquid currency and the safe haven of choice when confidence evaporates from financial markets.
The pound has also been hit by investor concerns that Britain’s approach to dealing with the virus, which has seen a more staggered disruption to economic and everyday life than in other countries, is not the right one.
Britain’s large current account deficit has also made sterling vulnerable, while drastically poorer liquidity has exacerbated moves downwards.
Sterling fell as much as 1.6% to $1.1490 by 1550 GMT before recovering slightly.
Last week the British currency briefly touched a 35-year low of $1.1413.
Against the euro, sterling tanked by an even greater margin.
The euro added 2% to 93.61 pence, still some way off last week’s lows of 95 pence.
Some analysts have been impressed by the British policy response to the crisis, but say sterling has not benefited. The Bank of England has slashed interest rates to record lows, ramped up its quantitative easing programme and the government announced significant fiscal stimulus.
“The broken financial environment means that GBP is not able to respond to the proactive fiscal support undertaken by UK policy makers,” ING analysts said in a research note.
Kit Juckes, an analyst at Societe Generale, noted that according to positioning data, as of last Tuesday there had only been a small reduction in the long positions on the pound.
That would make the currency vulnerable to further falls as investors cut their long positions.
“Has the slide since Tuesday cleared the longs? It seems doubtful,” he said.
Currency markets were highly volatile again, with the dollar falling after the U.S. Federal Reserve announced an unprecedented scheme of credit support to help the United States economy.
The greenback later recovered some of those losses as stock markets resumed their fall and investors sought safer places to put their cash.
British flash Purchasing Managers Index survey data for March published earlier on Monday unsurprisingly fell into contraction, with the coronavirus expected to damage the economy further in the weeks ahead.
Reporting by Tommy Reggiori Wilkes
Source: UK Reuters