Pound Falls After Virus Lockdown Confusion Adds to Brexit Muddle
Pound Falls as Confusion on Lifting Lockdown Adds to Uncertainty
(Bloomberg) --
The pound was already weighed down by concern over trade talks between the U.K. and Europe and the economic fallout of the virus when Prime Minister Boris Johnson added one more reason to be uneasy.
Sterling weakened as much as 1% against the dollar, the most in three weeks, after Johnson’s public address on Sunday about his government’s plan to ease the nationwide lockdown lacked clarity. His comments to the House of Commons a day later did little to help the British currency after the call to bring Britain back to work just added to the confusion.
It comes just as the U.K. and the European Union begin negotiations over trade issues, the most pressing of which are unlikely to be resolved, officials with knowledge of matter said about two weeks ago.
That’s adding to the anxiety investors feel over the prospects of a messy divorce, and explains why, together with the multitude of factors weighing on the pound, the increase in the currency’s one-month implied volatility in May is among the biggest in the world.
“Investors are concerned about the lack of progress in the post-Brexit talks between the U.K. and the EU and about widespread criticism that the government’s response to the coronavirus crisis was slow and, latterly, that it is vague,” said Jane Foley, senior foreign currency strategist at Rabobank.
A Cruel Month
The currency dropped 0.7% to $1.2326 as of 4:56 p.m. in London, and weakened 0.4% against the euro.
The pound’s risks are piling up in a month that has historically proved bleak for the currency. Sterling has fallen every May over the past decade, and all but four times since 2000.
Worse still for global currencies is the preference for the greenback as the world’s safe haven currency of choice. Bloomberg’s dollar index advanced 0.4%, bouncing off its 55-day moving average.
“Lower risk sentiment, lower pound,” said Jordan Rochester, a Group-of-10 foreign-exchange strategist at Nomura International. “It remains a global pandemic.”
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