Pound slides against the dollar amid coronavirus recession
The pound has fallen against the dollar after dire economic data and as investors sell shares in favour of holding cash amid the coronavirus pandemic.
Sterling was one per cent lower against the dollar this morning at $1.228. It was down 0.6 per cent against the euro at €1.136.
Stock markets were lower across Europe this morning. They were dragged down by a raft of grim survey data and rising fears over the economic hit from coronavirus.
Investors have sold shares in favour of holding the US dollar. It is the world’s most important currency and a so-called safe haven during times of economic stress.
The dollar index, which charts demand for the greenback, rose 0.5 per cent.
The pound was also dragged down by fears over the UK economy. Purchasing managers’ index (PMI) data today confirmed the UK services sector had its worst month on record in March.
“The historically low reading in composite PMI could weigh heavily on sterling in the short-term,” said Sam Cooper, vice president of market risk solutions at Silicon Valley Bank.
“However, it is unlikely to have a long term impact if the same weakness is observed globally.”
Euro and pound suffer vs dollar
The PMI data for the Eurozone was worse than the UK’s, with Italy’s services sector all but shutting down.
This drove the euro 0.4 per cent lower against the dollar at $1.081.
Derek Halpenny, head of EMEA research at Japanese bank MUFG, said: “We are not surprised at this juncture to see the dollar remaining strong.”
“Uncertainty remains high and global recessionary conditions will benefit the dollar” against currencies such as the pound, he said.
Investors favour the greenback because it usually holds its value during downturns. The majority of the world’s trade and finance is carried out using dollars, so demand is almost always high.
Bank of America yesterday predicted the worst economic crash since at least World War II. It said it expects further disruption in currency markets which it said have not yet come to terms with the scale of the downturn.
“We are bearish on the EUR because of a worse recession and the lack of sufficient fiscal policy coordination and no debt mutualisation,” said BoA currency analyst Athanasios Vamvakidis.
He said things look better for the pound: “We expect GBP to remain supported as the funding pressures ease.”