Earlier in the year sterling sat in the high 1.34s against the US dollar only to fall to 1.15 as the coronavirus became a threat to the global economy. We have seen some restoration of faith in the pound with GBP/USD currently sat in the 1.24s and at its highest pound to dollar rates reached 1.2528 today on the interbank exchange.
During times of global economic uncertainty the pound is often not the destination of choice. The imbalance between imports and exports does not fill investors with confidence when it comes to putting their money in sterling. Despite the pounds recent gains I would be wary of hanging on for further significant gains as sterling remains fragile and could be that way for the foreseeable.
Brexit Negotiations Slow as Boris Reiterates ‘No Extension’
The gradual easing of lockdown measures will influence the pound’s strength but let us not forget even without the coronavirus we still have Brexit to deal with. Boris Johnson has of yet not announced any plan for a Brexit extension and it seems as though he will stick to his guns and attempt to get a deal over the line with Brussels by the end of 2020. The deal must also be initially agreed upon in June.
Johnson may fancy making a legacy for himself by beating the coronavirus personally, then leading the UK back to normality against the virus and also getting a Brexit trade deal in place all in 2020. A dangerous game which could price costly. If there is one thing that does not sit well with investors it is uncertainty and with no extension announced a no deal scenario is still on the table and the is could hold back the pound.
USD Maintains Safe Haven Status
Despite the US being described as the epicentre of the virus the dollar is holding up. During times of global economic uncertainty the US dollar is considered the destination of choice and its status as a safe haven currency remains in tact. The Federal Reserve has promised huge monetary stimulus in the form of a $2.2trn injection into the economy something that has given faith to investors that the US economy will remain resilient.
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