The British pound has come under pressure in today’s trading session, following on from Friday’s losses after tensions over the coronavirus drastically escalated between the US and China which saw investors flock to the safety of the US dollar.
Secretary of State Mike Pompeo on Sunday backed up US President Donald Trump’s theory that the coronavirus originated in a research laboratory in Wuhan, China, which until now has not been proven beyond a reasonable doubt
“There’s enormous evidence” that the coronavirus did not come from a wet market but infact came from a viral lab in Wuhan Mr Pompeo said
The Greenback has tended to perform well in times of crisis with China as it did during the time of the trade war negotiations last year.
"Rising tensions between the U.S. and China over the coronavirus are supportive of both USD and JPY. We expect USD to remain supported this week," says Kim Mundy, a foreign exchange strategist at Commonwealth Bank of Australia.
The British economy is likely to face a lockdown much longer than other countries on the back of the coronavirus which is going to do severe and long lasting damage to the British economy. There is also the Brexit negotiations that are currently underway and with the clock ticking down until the end of the year, time is running out for the UK to secure a deal. This will see them crash out of the European Union and will cause more damage to the economy and the pound will suffer as a result
The weakness in the pound "Is likely a function of the resurgence of some shorts related to Brexit uncertainty, which recently crept back onto investors’ radars. GBP net positioning is now at -4% of open interest, but the risk of additional downside in the gauge is quite material, especially when adding the rising concerns about the economic fallout of extended lockdown measures in the UK," says Francesco Pesole, FX Strategist with ING Bank N.V.
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