The pound has plunged to its lowest level against the dollar since 1985 as the spread of the coronavirus and confused government response has spooks traders.
GBP is currently trading at $1.16 after falling nearly five per cent in just 24 hours.
The fall in the value of Sterling has come as financial markets around the globe are tumbling despite varying plans from world leaders on how to manage the crisis.
The UK’s FTSE 100 closed down 4%, while in the US the Nasdaq dropped 4.7%, the S&P 500 fell 5.1%, and the Dow plummeted 6.3%. Meanwhile in Europe, France’s CAC 40 was down more than 6% while Germany’s DAX fell by more than 5%.
Whilst US companies and the US stock markets are facing similar issues to those in the UK, investors continue to flee the pound and instead move their money into the “safe havens” of the US dollar or the Euro. Sterling is down more than 12% against the dollar in the last 10 days, and whilst analysts have raised many reasons for dramatic hit to the currency on world markets, the lack of certainty around Brexit and the resultant increased future tariffs have added to worries that UK will not bounce back from the crisis as quickly as some other economies. Traders are hedging their risks with pound sterling forwards, but as the government continues to announces new measures to try and steady the economy investors remain wary.
Earlier this week Chancellor Rishi Sunak revealed a £350bn stimulus packages for UK firms, made up mostly of £330bn in loan guarantees. However, it is becoming apparent that further stimulus will soon be required to help the most precarious in society, the lowest paid, those on zero-hour contracts, and renters, all of whom have so far been excluded from any financial government help.
In contrast, the US’s $1tn (£830bn) strategy appears to be more broadly based and is expected to include direct grants to families and small businesses. And in Europe, Ireland has proposed giving all of its citizens a Basic Income of €200 a week to keep money flowing during the crisis, whilst Denmark has committed to paying up to 75% of people’s wages to avoid a spike in layoffs.
As COVID-19 continues to wreak havoc on businesses and families around the world, it remains unclear how long the disruption will last. Any possible vaccine is at least 18 months away, and whilst immunity levels will climb during that period, social distancing and curfews is expected to wipe hundreds of billions of pounds of global GDP.
Each country is facing its own challenges at home, but Downing Street has been slow to offer help to those struggling. A promise of mortgage relief is welcomed by millions who will be affected by the pandemic, but for those renting there is only the promise that eviction will be delayed by a couple of months. Families already struggling are now left with precarious living situations that can only be addressed on a national scale.