February 28, 2020 / 9:26 AM / 5 months ago

Sterling tumbles to 2020 lows as investors dash for safety

FILE PHOTO: A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang/File Photo

LONDON (Reuters) - The pound dropped sharply on Friday, losing nearly 1% against the euro and the dollar as worries about the fast-spreading coronavirus sent investors out of currencies deemed riskier.

As investors rushed for the safe-haven Japanese yen, Swiss franc and U.S. dollar, sterling fell to its lowest against the dollar since October. Other currencies closely linked to risk sentiment also tumbled - the Australian dollar fell 2%.

Analysts said that while there was no sterling-specific news on Friday, Britain’s finances had left it vulnerable - its large current account deficit means the country depends on overseas investment.

Investors are also fretting about Britain’s negotiations with the European Union over a trade deal and whether a UK budget next month will include much more spending, which many investors say is necessary to boost economic growth.

“While country-by-country tallies of COVID-19 shows an un-alarming total of 15 in the UK, its near 5% current account deficit means a tightening of financial market conditions leaves currencies like the pound vulnerable to the downside,” MUFG analysts said in a note.

Sterling skidded to as low as $1.2760 in late London trading before recovering to $1.2775, down 0.8% on the day.

Versus the euro the pound dropped to as low as 86.08 pence. That was the weakest level for sterling since November and means the pound has erased all of its gains made in the run-up to the British general election in December.

Reporting by Tommy Reggiori Wilkes; Editing by Hugh Lawson and Susan Fenton

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