Rush for greenback sees pound plunge
By Abigail Townsend
Date: Wednesday 18 Mar 2020
(Sharecast News) - The pound has tumbled to lows not seen since the shock Brexit referendum result in 2016, as the coronavirus pandemic prompts a "synchronised rush" to buy up dollars.
As at 1230 GMT, sterling was trading 1.43% lower against the dollar at $1.188 and was off 1.28% against the euro at €1.083.
Against the dollar, excluding the so-called flash crash of June 2016 - when the pound only temporarily collapsed - it is the lowest level since 1985. Sterling, which has not traded consistently under $1.20 since the 1980s, had touched $1.3102 on 9 March.
Neil Wilson, chief market analyst at Markets.com, said: "This is one of the worst sustained periods of sterling selling that I can recall, and points to a severe dollar liquidity crunch that central banks have yet to get a grip on. There is a synchronised rush for dollars that has caught most companies, governments and traders on the hop.
"Dollar funding issues have been far more serious than estimated prior to this crisis."
Connor Campbell, financial analyst at Spreadex, said: "With investors desperately looking for something resembling a safe haven, the dollar has become a go-to for nervy traders, causing the pound to get absolutely pummelled.
"It fared no better against the euro, an indication perhaps of what investors think of how the government is handling the coronavirus crisis."
Wilson added: "The UK government's massive fiscal package undoubtedly means more borrowing for the UK economy - how do we all pay for all this? And in a rather bizarre turn of events, the euro has developed certain safe-haven characteristics. Sterling, on the other hand, is a bit of a proxy for risk.
"Concerns about what the implications are on Brexit from the coronavirus may also be a factor, while we have also seen a sharp downgrade of UK growth forecasts - but Britain is not alone on that front by any means."
The UK government has unveiled a series of measures aimed at preventing the economy from collapsing because of the coronavirus outbreak. On Tuesday, Chancellor Rishi Sunak said he was making ?330bn available in state loans for affected companies.
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