Pound Suffers in Market Mayhem With BOE Seen Easing More

(Bloomberg) --

The pound suffered its biggest slide since the aftermath of the 2016 Brexit referendum, as investors sought sanctuary in U.S. dollars from the coronavirus pandemic.

Turbulence across European markets saw sterling fall more than 2%, heading for the biggest drop since October 2016, to trade around $1.25. The pound’s move comes against a backdrop of escalating volatility in global currencies and strains in funding markets.

“It’s a dash for dollars,” said Ned Rumpeltin, head of European foreign-exchange strategy at Toronto-Dominion, by email. “The dollar funding markets have tightened considerably and the ECB’s lack of urgency displayed today has not helped matters. Sterling is being dragged along for the ride.”

Read More: Here’s a Sign That Stress in FX Markets Is Worse Than 2008

Weakness in the pound was particularly notable as just a day earlier the U.K. undertook coordinated fiscal and monetary measures to cushion its economy for the fallout of the coronavirus. Speculation is rising that the Bank of England could ease policy even further after this week’s emergency interest-rate cut.

Despite the BOE slashing rates by 50 basis points, a move unseen since the 2008 financial crisis, money markets are still pricing in a 44% chance of a further 15-basis point-cut in its March 26 gathering -- that would take the bank rate to an historic low of 0.10%.

“It’s a combination of general agreement that the dollar is the risk aversion haven of choice, and suffering from the policy easing,” said Neil Jones, head of foreign-exchange sales to financial institutions at Mizuho Bank Ltd.

Currency turbulence around the world has awoken from lethargy that sent hedging costs to record lows last year. It may just be prepping the scene to revisit levels reached when the global financial crisis crippled markets in 2008, several gauges suggest.

What Bloomberg Intelligence Says:

“Today’s euro sell-off is driving sterling lower in the process, with the pound trading as a high beta currency again in a highly volatile G-10 currency context. There are also mounting jitters over the U.K. near-term coronavirus outlook and government responses as the U.K. cases creep higher.”

-- Audrey Childe-Freeman, Chief G-10 Foreign Exchange Strategist

--With assistance from Anil Varma and Vassilis Karamanis.

To contact the reporters on this story: Anooja Debnath in London at adebnath@bloomberg.net;William Shaw in London at wshaw20@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Pete Norman, Neil Chatterjee

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