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USD Demand Brings GBP Forex Market to New Lows

Updated on
  • Pound has tumbled a further 5% in crash
  • Sterling hits lowest point since 1985
  • Weak UK response and strong Dollar demand blamed

The GBP took a severe beating on Wednesday as no light at the end of the tunnel has yet appeared for the global economic battle against the COVID-19 coronavirus. The currency is today continue to struggle to raise itself from the $1.15 mark having been dealt a series of blows yesterday. The currency reached the lowest point it has seen in three decades as investors fled for the perceived safety of the US Dollar.

Further Falls not Ruled Out in Record Day

From an already weakened position, Sterling managed to fall a further 5% in yesterday’s  fx trading. As Thursday comes into view, there has been little action overnight to hint at a revival in fortunes to end the week.

With the currency taking a breather from the fall, but still struggling to find significant traction, Bank of England Governor Andrew Bailey admitted that they will keep a close eye on the currency movements. The BOE having already implemented a rate cut to stimulate the economy, could be forced into further action. If they are to step in with additional assistance, this may well come after next week’s Monetary Policy Meeting. In the meantime, analysts are not overly optimistic of a bounce back before the end of Friday trading.

Multi-Year Low Impacting All UK Assets

The forex market was not alone in seeing a pronounced slump yesterday in the UK. Several other assets including sovereign bonds took a dive. The FTSE 100 in London also traded down more than 4% to compound a difficult, rollercoaster day for the domestic economy.

This has ultimately left the new Bank of England Governor with multiple headaches and a currency which is sitting at the lowest point since 1985. This marks the continuation of a worrying trend for the Pound with the fact it has now fallen 12% against the USD and more than 9% against the Euro since the beginning of the year and the January 31st Brexit.

USD Strength a Key Factor

Analysts are generally pointing to two major factors behind the current downfall of the Pound. The first of these is the rampant strength of the US Dollar. With the wider global economy in a state of prolonged panic, the Greenback has emerged as a pillar of strength. Investors have been pulling out of all other assets to flock to the relative safe haven of the USD.

A second important reason for the current downward spiral is a market response to the British Government attitude in fighting the COVID-19 pandemic. PM Boris Johnson and his team have persisted with a more relaxed “delay” approach to the crisis while other nations around Europe and the globe have implemented virtual shutdowns. This has removed any remaining confidence from the market which seems to feel like a negative impact is inevitable unless stronger measures are taken.

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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