The British pound plunged to its lowest levels in more than three decades on Wednesday barring a flash crash in October 2016 as concerns about the economic impact of the coronavirus overshadowed any stimulus efforts by policymakers so far.
While the British currency has been under selling pressure since last week after it hit a two-month high above $1.31, the selloff accelerated on Wednesday as traders dumped positions across the board.
Against the dollar, the pound plunged 1.7% to $1.1852, its lowest level since the October 2016 flash crash. Barring the low of $1.1491 hit then, the pound is trading at its lowest level since March 1985, according to Refinitiv data.
“The pound is trading at historic lows on a combination of the safe haven dollar bid, the coronavirus stock selloff and liquidation of long positions following the British election,” said Neil Jones, head of hedge fund currency sales at Mizuho Bank in London.
Traders shrugged aside news that Britain would launch a 330 billion-pound ($399 billion) lifeline of loan guarantees and provide a further 20 billion pounds in tax cuts, grants and other help for businesses facing the risk of collapse.
While long positions in the British pound have reduced to some extent, they still remain near their highest levels in two years, according to latest positioning data.
Banks borrowed more than $15 billion from the Bank of England’s U.S. dollar repo operations on Wednesday, part of measures announced by six central banks to keep the financial system working during the coronavirus outbreak.
But that failed to calm a broader selloff in the bond markets, with yields on 10-year British government bonds spiking to their highest level since January 2020.
“The main reason for dollar demand is liquidity concerns as in volatile times, companies and investors need dollars to settle transactions and as long as these concerns persist, we expect the pound to remain on the back foot,” strategists at UBS Wealth Management said in a note.
Against the euro, the British currency weakened 1.13% to 92.21 pence.
Source: FINANCIAL POST