During times of global economic uncertainty investors will seek out safe haven currencies. The US dollar is often the destination of choice and has certainly proved popular during the current situation.
Sterling is the opposite and is considered one of the riskier currencies to be involved in the current situation. The UK’s imports far outweigh our exports and we also still have a complete lack of clarity on Brexit trade deals. It is also now highly probable that there will be an extension to trade talks that will fall into 2021.
Even without the awful corona situation it still could be deemed that the Pound is fragile due to Brexit. At present it seems that the UK precautionary measures are having some effect, but this is not proving to be the case in the United States with a large number of cases being reported.
BoE and Fed Slash Interest Rates
It is important to question whether investors confidence will wane if the situation continues to escalate in the United States and the US dollars status as a safe haven starts to dwindle, remember the US does not have a public health care system and many will be unable to afford treatment. Both the Bank of England (BOE) and the Federal Reserve have slashed interest rates in an attempt to keep liquidity in each of the economies.
The Federal Reserve has also pledged to pump USD 2trillion into the economy through Quantitative Easing (QE). QE is pumping money into an economy in order to stimulate growth, the money is usually borrowed through banks.
So a very uncertain future lies ahead. If you are sitting on Sterling and need to move to US dollar short term it may be wise to take advantage of current levels.
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