The Pound US Dollar (GBP/USD) plummeted by over -2% and is currently trading around $1.17, its lowest level since 1985. Traders have flocked to the safe-haven refuge of the US Dollar (USD) today with the ongoing coronavirus crisis threatening to push the global economy into a recession.
Thomas Flury, a Currency Strategist at the Swiss Bank UBS, explains: “The main reason for dollar demand is liquidity concerns: In volatile times, companies and investors need dollars to settle transactions.”
“As long as these concerns persist, we expect GBP/USD to remain on the back foot.”
With the European Union implementing a travel ban and the Chinese economy set to slow down in the first-quarter, investors have flocked to the US Dollar (USD) which remains the world’s most liquid currency.
The Pound (GBP) suffered against the ‘Greenback’ after Andrew Bailey, the Bank of England’s (BoE) new Governor, warned that the UK is facing an economic emergency.
Mr Bailey said, “This is going to involve a lot of work. We will, no question, have to come back to this because things will evolve … We are facing an emergency.”
Now that the UK faces the very real threat of an economic recession, with some analysts saying that it could be worse than projection of a ‘hard Brexit’, the Pound is likely to come under further pressure.
Sterling has found little support after Chancellor Rishi Sunak’s announcement of a £350bn stimulus package to bolster the British economy throughout the Covid-19 crisis.
Richard Benson, the Co-Chief Investment Officer at Millennium Global Investments in London, said that GBP had been ‘completely overwhelmed by the coronavirus’, and compared the current crisis as being worse than any previous Brexit scenario.
Thomas Flury and Dean Turner of UBS were more optimistic, commenting: “The level of fiscal-monetary coordination by the UK government and the Bank of England strengthens our conviction that sterling is set for a rebound once the global economy stabilises.”
Looking ahead, the GBP/USD exchange rate will remain volatile as the UK Government continue to grapple with the coronavirus. However, we could see the Pound recover some of its losses if Downing Street announces any further stimulus measures to bolster the economy.