March 17, 2020 / 8:17 AM / 12 days ago

Sterling falls to 6-1/2 month lows as investors snap up dollars

LONDON (Reuters) - Sterling dropped to its lowest level against the dollar since early September on Tuesday, as investors hoovered up the U.S. currency and after Britain toughened its approach to containing the coronavirus outbreak.

FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/Benoit Tessier/Illustration

The pound has been in retreat as fears about the likely full economic impact of the pandemic have roiled global markets and sent investors fleeing to assets seen as relative safe havens, including the dollar.

Analysts say sterling is also vulnerable given Britain’s high current account deficit.

The pound fell as much as 2% to $1.2029 on Tuesday before recovering slightly.

The British currency last traded at such levels back in September, at the height of fears the country was headed for a sudden, disorderly exit from the European Union.

Against the euro it edged up 0.3% to 90.97 pence per euro, but was still trading near the previous day’s six-month low of 89.89 pence.

Prime Minister Boris Johnson on Monday tightened restrictions and placed curbs on social life in Britain.

Analysts expect the Bank of England (BoE) to take further action to limit the economic fallout at its next meeting on March 26.

“We could potentially see more BoE stimulus coming through soon - for example a 15 basis point rate cut and potentially £100bn+ Gilt buying QE (quantitative easing) scheme,” analysts at ING said in a note.

Money markets are pricing in a 33% chance of a further 25 basis point BoE interest rate cut next week.

(Graphic: World FX rates in 2020 - here)

(Graphic: Trade-weighted sterling since Brexit vote - here)

Reporting by Iain Withers; Editing by Tommy Reggiori Wilkes; Editing by Kirsten Donovan

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