The pound has started May on a gloomy note, losing more than 1 per cent of its value as Brexit concerns resurfaced and investors chose the safety of the US dollar amid renewed tensions between Washington and Beijing.
Sterling has shed 1.2 per cent against the dollar in the first two trading sessions of the month, pushing it to $1.2434 by afternoon trading on Monday. It has also declined 0.8 per cent against the euro, with one pound buying €1.1410.
Global equity markets also stumbled after the US government on Sunday again linked the Covid-19 outbreak to a laboratory in Wuhan, China. Beijing has denied the link.
Mark McCormick, global head of FX strategy at Toronto-based TD Securities, said dollar demand would keep currencies like the pound and the euro under pressure while tensions persist.
“We continue to expect broad dollar strength in the next few months, reflecting a disconnect between the global growth outlook and market pricing,” he added.
The Australian dollar, the euro and emerging markets currencies also wilted against the dollar as investors eschewed riskier assets, with the Brazilian real losing 2 per cent in a day.
Sterling’s slip was also due to the lack of an announcement from the UK government about whether the crisis would delay Brexit negotiations, said Seema Shah, chief strategist at Principal Global Investors.
So far the UK government has said it will not delay its end-of-year deadline for ending the Brexit transition period, despite the impact of the pandemic.
“The last thing investors need is more uncertainty,” Ms Shah said. “We don’t expect the UK to make a very quick recovery after lockdown and if we don’t know by June what the next steps are, we could be staring a hard Brexit in the face again.”