| April 10, 18:21 GMT | By Umayr M Hossanee
The recent pandemic of Covid-19 (Coronavirus) has taken everyone by surprise and impacted the entire global economy in an unprecedented manner. We have seen the death toll rise across the globe to an estimated figure of 97,235 with a further estimated 1,623,130 infections. Throughout this report we will be discussing the impact on the UK economy and the valuation of the GBP since the start of the outbreak up until present day.
Covid-19 was declared a global pandemic on the 11th March 2020 by The World Health Organisation (WHO). This news took the world by storm as investors panicked across the world triggering a freefall in numerous economies, one being the UK. The future of the worlds response to the health crisis is unpredictable let alone the financial markets, however given the data our analysts have gathered we can paint the best picture possible.
GBPUSD found resistance around the 1.32 level prior to the announcement but fell an impressive 3.43% just on assumptions and brief reports that the Covid-19 could be announced as a pandemic. From the 11th to the 19th March we saw an impressive fall from the 1.30 level to unexplored lows of 1.15 on GBPUSD equating to a 12.89% fall. Part of this was due to the Bank of England’s decision to slash the interest rates from 0.5% to 0.25% in a bid to combat the economic downfall. “The level of fiscal-monetary coordination by the UK government and the Bank of England strengthens our conviction that sterling is set for a rebound once the global economy stabilises,” said Thomas Flury and Dean Turner of UBS Global Wealth Management.
This was to be the lowest level the pound fell against the dollar in 35 years. Analysts said that some of the fall may be down to the dollar’s strength rather than the pounds weakness. This would add an element of confidence to the sterling and instigate a much quicker recovery.
However, the sterling was also down 0.2% against the EUR and fell more than 10% against the currency in the week of the announcement. We saw EURGBP rise from the 0.83 level to the 0.86 level at the beginning of March and breaking the 0.93 high in the process, reaching the 0.95 level which had not been tapped since March 2009.
Considering all these factors we can see that it was not mere dollar strength that prompted the fall in the valuation of the pound, but more so the Covid-19 implications.
Given the nature of the drop that GBP suffered against the Dollar we have seen a good amount of recovery, which can be seen in the chart above, indicated by the move from 1.15 to the 1.25 region.
Another factor that recently came into play was the health of the British Prime Minister, Boris Johnson. The PM suffered from mild symptoms of Covid-19 which quickly escalated, resulting in him being placed in intensive care. This caused a period of slight bearish pressure on the sterling, causing it to drop from 1.25 to 1.22, but after recovering at a good rate we find ourselves back to a more critical and key level of 1.25.
The Future Outlook
There can be no accuracy in speculating the next sure move of GBP based on hopeful assumption. What we can do best is plan out the possible moves that can pan out based on situations likely to arise.
Given recent policies and regulations put in by the government that endorses social distancing, combined with the lowering of the death toll and the PM’s increased health. We could see GBPUSD push pass the 1.25 level and eventually hitting the key areas of 1.28 based on BXY and Economic data analysis.
However if we continue to see a significant rise in the death toll within the UK and any cuts in the government framework of aiding businesses, then we should expect the currency to drop further not only back to its previous 1.15 level but potentially lower, which would once again be unprecedented regions for the currency.
The current situation within the UK is understood that there will be a further 3 weeks continuation of the lockdown, which will be followed by a further review until the situation takes a turn for the better. Given the severity of the global impact it is very likely this will continue until June time. However even after the lockdown is over, the government will likely and rightly so, impose much stricter restrictions on the day to day activities that can take place.
The government will allow for businesses to reopen and carry on trading as per usual, perhaps with a few limitations in place. However, travel will be promoted to stay limited which will mean that if you are thinking of planning a holiday abroad do not get your hopes up, as other countries will still be within their lockdowns. Should everything go ahead as planned we should see the country close to 'normality' by the end of 2020, as the last thing the government will want is for the recovering state of the economy and society to relapse.
Our main priority as a society is to follow the rules and regulations put in place by the government and do our best to social distance in these testing times as we hope to recover soon from this current climate.