The pound fell sharply on Friday, losing nearly 1% against the euro and the dollar as worries about the fast-spreading coronavirus sent investors out of currencies deemed riskier.
As investors rushed for the safe-haven Japanese yen, Swiss franc and US dollar, sterling fell to its lowest against the dollar since October. Other currencies closely linked to risk sentiment also tumbled – the Australian dollar fell 2%.
Analysts said that while there was no sterling-specific news on Friday, Britain’s finances had left it vulnerable – its large current account deficit means the country depends on overseas investment.
Investors are also fretting about Britain’s negotiations with the European Union over a trade deal and whether a UK budget next month will include much more spending, which many investors say is necessary to boost economic growth.
“Sterling is acting as the wild card in a coronavirus-dominated market, mostly reliant on investors’ mood when it comes to fiscal stimulus expectations ahead of the UK budget and UK-EU trade negotiations,” ING strategists said in a note to clients.
“Next week these two drivers will remain predominant, as the calendar offers very little in terms of market-moving data releases.”
Sterling skidded to as low as $1.2753, a fresh 2020 low and its lowest level since October 2019, in late London trading before recovering to $1.2775, down 0.8% on the day.
Versus the euro the pound dropped 0.9% to as low as 86.22 pence. That was the weakest level for sterling since November and means the pound has erased all of its gains made in the run-up to the British general election in December.