Sterling has collapsed to multi-decade lows against the US dollar, sinking as much as 4 per cent as the coronavirus outbreak continues to rip through global markets.
On Wednesday, the pound traded below $1.15 against the dollar for the first time since the 1980s, extending a decline over the past week.
Part of the decline stems from a global scramble for dollars that has built up since companies started hoarding funds to give themselves buffers to ride out the pandemic.
On March 9, before travel restrictions in Europe kicked in, sterling was trading at $1.31. But the likely global impact of the disease has spurred a sharp decline in riskier assets, sending stock indices around the world tumbling and investors rushing to the safety of the dollar.
“Everyone thought that Brexit was the big deal for sterling this year but . . . the currency has been completely overwhelmed by the coronavirus,” said Richard Benson, co-chief investment officer at Millennium Global Investments in London.
Sterling has lost more than 8 per cent against both the dollar and the euro since the start of the month, taking its year-to-date slide to more than 11 per cent against the dollar. The decline continued this week despite new measures from the UK government to fight a looming economic downturn.
Other major currencies generally treated as riskier bets also fell, notably the Australian dollar, which hit its weakest point since 2003, and the Canadian dollar, which hit a nine-year low. Dominic Bunning, a senior currency strategist at HSBC in London, noted that it was highly unusual for sterling to trade in line with this pair, which are normally more sensitive to broader appetites for risk across markets.
“Sterling seems to be driven entirely by investor sentiment,” Mr Bunning said. “I think it’s partly down to the fact that having left the EU, the UK is now less insulated from shocks and less closely linked with this massive economic bloc.”
Paul Jackson, global head of asset allocation research at Invesco, agreed that Brexit had left the UK economy in a compromised position.
“If you are already weakened by an underlying condition (Brexit, in the case of sterling), then the risks are greater,” he said.
Some analysts also said that the UK’s initially measured approach to the virus, in contrast to a more urgent response seen elsewhere, had also weighed on the currency.
“The UK is really at odds with the responses we’ve seen in other European countries and I think that’s one of the reasons why sterling is so out of favour,” said Silvia Dall’Angelo, a senior economist at Hermes Investment Management in London.
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