March 25, 2020 / 11:05 AM / 11 days ago

Sterling back under pressure with focus on coronavirus impact

LONDON (Reuters) - Sterling fell by half a percentage point to below $1.17 on Wednesday as investors adjusted their views to reflect the extent of coronavirus outbreak in Britain.

FIL PHOTO: Pound coins are seen in the photo illustration taken in Manchester, Britain September 6, 2017. REUTERS/Phil Noble/Illustration/File Photo

More than 400 people have died from the coronavirus in Britain and more than 8,000 have been tested positive, putting further pressure on its health care system, which lacks enough equipment to help patients, as well as on the British economy.

Sterling’s weakness is “a function of how deep and severe the virus curve is going to get,” John Velis, FX and macro strategist at BNY Mellon, said.

Velis said that the news from Britain “just isn’t great” and the government response required will affect the economy.

More than 170,000 people have signed up to help Britain’s National Health Service tackle the outbreak.

The pound was last down 0.6% at $1.1705, having slipped earlier to $1.1680. Against the euro, it also fell 0.6% to 92.28 pence.

“We’re back to where sterling should be,” Velis said.

The British currency had enjoyed some welcome respite on Wednesday on the back of a broad-based weaker dollar and rallying stock markets, hitting a one-week high of $1.1971.

The U.S. dollar had fallen across the board on some signs of stabler risk conditions amid the coronavirus crisis.

A rally in global stocks also helped, analysts said, given Britain’s economy is so reliant on financial markets.

Investors had also taken some comfort in thinking COVID-19’s impact on Britain’s economy could be somewhat alleviated by financial stimulus from both the Bank of England and government.

The British government on Monday opened the first part of a 330 billion pound loan guarantee scheme for businesses, which will help small and medium-sized firms borrow up to 5 million pounds to deal with stoppages.

The Bank of England last week promised 200 billion pounds of bond purchases and lent more than $15 billion to banks to limit the economic and market impact of the coronavirus.

It also cut interest rates to nearly 0%.

Reporting by Olga Cotaga; Editing by Andrew Cawthorne and Alexander Smith

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