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Sterling slides as growing coronavirus turmoil boosts dollar
[LONDON] Sterling tanked to five-month lows on Thursday, weighed down by worsening market turmoil after US President Donald Trump slapped restrictions on travel from Europe and European Central Bank stimulus measures fell short of expectations.
The British currency received a short-lived boost on Wednesday when investors welcomed stimulus measures from the Bank of England and the British government, including an interest rate cut and billions of pounds of support for struggling firms.
But the pound has since tumbled, first following Mr Trump's flight ban and then again as investors scrambled for dollars following the European Central Bank's decision to keep interest rates on hold.
The US flight ban exempts Britain but has been seen as a sign of an escalating crisis.
The ECB announcement caused the euro to fall and the dollar to rise as traders rushed to buy the most liquid currency, which tends to do well during market panics.
Sterling slid 1.8 per cent to US$1.2584, its weakest since October. The pound also fell to 89.12 pence per euro, its lowest level against the single currency since October.
"I think of course they (the BoE and UK government) tried to surprise us with the rate cut and a big package. I thought it was well coordinated but I think people are still so scared they don't want to be long sterling. It still makes sense to be somewhat short sterling," said Morten Lund, senior FX strategist at Nordea.
Analysts at MUFG said in a note that an "aggressive response to combat the coronavirus fallout by UK policymakers has failed to alter the pound's recent weakening trend".
They added: "The coordinated loosening of fiscal and monetary policy should help to provide more support for the UK economy but is no silver bullet to prevent a sharp slowdown in the coming quarters."
The pound's fall was mirrored by a slide in stocks in London, with the FTSE 100 index last down nearly 9.5 per cent.
British Prime Minister Boris Johnson was due to chair an emergency meeting shortly at which he was expected to approve moving to the "delay phase" of the response to the coronavirus including more stringent control measures.