Sterling slides further amid virus and Brexit fears

Sterling started the day on a downbeat note, continuing its slide lower amid deepening concern over the pace of new coronavirus infections that in turn bolstered the US dollar.

The pound was down 0.3 per cent in early dealings on Wednesday, breaking below its 200-day moving average to trade at $1.2691. The currency has had a rocky week, hit by news of renewed social restrictions in the UK and Spain intended to halt a second wave of the virus, and sustained uncertainty about a no-deal Brexit.

Fears that the worsening pandemic may stifle the economic recovery has proved a boon for the dollar. The greenback, as measured against a basket of its trading peers, has strengthened this week as investors flocked to haven assets. The currency hit a high for the month on Wednesday morning, though it remains substantially below where it started the year, partly due to the US Federal Reserve’s interest-rate cuts.

The dollar is still likely to weaken in the medium to long term, but over the next two weeks US fiscal uncertainty and Covid-19 trends in Europe may dominate price action once again”, said Jordan Rochester, global currencies strategist at Nomura.

Gold, which has been a big beneficiary of the weaker dollar, fell to its lowest point since July at $1,875 per troy ounce, down 1.3 per cent.

Despite this week’s gains for the dollar, Jeff Schulze, investment strategist at ClearBridge, said its “path of least resistance will be further down from here”. That is partly down to historically low interest rates and monetary stimulus that has increased the US money supply, he said. The dollar will move further down “as we get closer to the [US presidential] election”, he said.

Investors were focused on eurozone data releases on Wednesday for signs as to whether the economic recovery was faltering. Early releases were downbeat: France’s composite purchasing managers’ index disappointed, coming in below August’s reading at 48.5 in September. A level beneath 50 indicates a contraction.

“The recovery is stalling . . . We had worried about a headline [reading] like this said,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

Germany’s reading also fell short of expectations, rising marginally from August’s to 53.7. A separate consumer confidence survey from GfK also indicated that consumer confidence had barely moved between September and October.

Mr Vistesen said the consumer data were “more optimistic than we had expected, given the return of the virus, and the increasing risk of new restrictions. That said, the German economy remains a positive outlier in this regard with an altogether less severe trajectory in the headline virus numbers”.

Despite the gloom, European stocks continued their recovery from Monday’s sharp sell-off. London’s FTSE 100 was up 1.8 per cent in early trading, while the German Dax lifted 1.5 per cent and bloc-wide Stoxx 600 gained 1.2 per cent. Travel stocks edged up after two days of falls, with tour operator Tui up 1 per cent.

In Italy, the benchmark 10-year bond yield fell to trade at 0.823 per cent, close to a record low, as investors bought into the debt. The rally followed a disappointing round of regional elections for the anti-migration party of opposition leader Matteo Salvini, but also points to more risk-taking by investors.

In the Asia-Pacific region, Hong Kong’s Hang Seng index edged up 0.2 per cent, and China’s CSI 300 rose 0.4 per cent, bolstered by healthcare stocks.


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