LONDON, April 16 — The pound slipped slightly against the dollar and euro today as the UK government said the novel coronavirus outbreak was starting to peak but it would be premature to lift a country-wide lockdown.
The British government is currently discussing a review of social distancing measures with the announcement of a further three-week lockdown expected.
Versus a stronger dollar, the pound was down 0.38 per cent at US$1.2463 while it weakened 0.11 per cent against the euro, to 87.18 pence.
There was little market reaction when a spokesman for the UK Prime Minister Boris Johnson said the government would not ask for an extension to the transition period out of the European Union.
Earlier, the head of the International Monetary Fund said Britain should ask for an extension to its post-Brexit transition period to ease uncertainty at a time when the world economy is being hammered by the coronavirus pandemic.
Speaking before health minister Matt Hancock said the virus would “run rampant” should measures be lifted now, Michael Hewson, chief market analyst at CMC markets said the lockdown extension was already priced into the pound.
Sterling is more driven by the dollar’s strength and the euro’s potential to weaken than by domestic factors, he said.
Hewson said he was “fairly bullish” on the pound against the euro, but less so versus the dollar.
“(I’m) still looking to buy dips in the short to medium-term simply on the basis that it’s probably a better bet than the euro at the moment,” he said, referring to the euro zone’s problems in coordinating their response to the crisis.
“In terms of where the pound could go in the short to medium term, it could probably drift back to around US$1.225 over the course of the next few sessions but ultimately I don’t expect it to weaken profoundly and if it does it’ll only be as a result of a big rise in the value of the dollar,” Hewson said.
As the coronavirus pandemic continues, worldwide cases have reached 2 million although lockdown measures have slowed growth around the world.
Britain’s economy could shrink by 13 per cent this year due to the shutdown, its deepest recession in three centuries, with public borrowing set to surge to a post-World War Two high, the country’s budget forecasters said on Tuesday.
“The return to more risk-off trading has been triggered by two key drivers,” said Lee Hardman, currency analyst at MUFG.
“Firstly, the price of oil has resumed its decline after details of the historic oil production agreement were finally revealed... Secondly, the latest economic releases yesterday confirmed that the Covid-19 shock has sent the US economy into freefall,” he said. — Reuters
