UK pound tumbles to lowest level in more than 30 years

Sterling fell to $1.1788 against the US dollar on Wednesday from highs of $1.32 on March 9

The cable could extend losses to the $1.10 mark, according to Swiss bank UBS. Bloomberg

The UK pound dropped to its lowest level since September as fears over the coronavirus pandemic sent investors flocking to safe haven currencies such as the US dollar.

Sterling fell to $1.1788  against the US dollar on Wednesday at 6.39pm  UAE time, a drop of 10.7 per cent from highs of $1.32 on March 9, hitting its lowest level against the US dollar since 1985.

Like many currencies, the pound has come under pressure against the US dollar in recent days, said Gaurav Kashuap, a market strategist at Equiti Global Markets.

“A lot of the weakness is emanating from the stronger US dollar demand,” he added. “As the Covid-19 theme develops and continues to deteriorate market sentiment, the dollar will continue to flourish as a safe haven.”

Sterling could extend losses to the $1.10 mark, according to Swiss bank UBS, if the global and long-lasting implementation of social distancing measures "create a deeper global recession".

However, "a faster-than-expected return to normalcy, with fading dollar demand and a clear path towards a benign free trade agreement with the EU", could see the GBP/USD pairing rally to $1.45 by the end of 2020, the bank said in a research note.

On Tuesday, the UK Chancellor Rishi Sunak unveiled an "unprecedented package" of £330 billion (Dh1.2 trillion) in government-backed loans for struggling businesses in the sudden economic paralysis caused by mass self-quarantine. Homeowners affected by Covid-19 were also promised temporary relief on their mortgages.

“The UK government announced a credit facility lending similar to the US Federal Reserve’s on top of monetary measures revealed last week. The Bank of England could lend up to 15 per cent of the British GDP this year, along with an additional fiscal package worth 2 per cent of GDP,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Markets did not respond positively to the announcement, with the FTSE 100 index opening sharply lower on Wednesday, dropping 3.2  per cent by 6.47pm UAE time.

An earlier £30 billion economic stimulus plan, unveiled during last week's budget, came hours after the Bank of England slashed interest rates by half a percentage point in a double-barrelled package aimed at warding off the risk of a coronavirus recession.

However, the central bank's monetary policy will also weigh heavily on the pound's prospects going forward, said Mr Kashyap, with speculation rife that the incoming BoE governor Andrew Bailey will act quickly and continue to cut rates to record lows.

It means UK economic data will not only be affected by the Brexit trade talks, which have stalled in recent days as the focus switches to Covid-19, but also by the strains on growth caused by the outbreak.

For UAE residents with interests in the UK, now could be a good time to cash in on the lower pound.

UAE resident Chris Battle, a commercial manager in the construction sector, who runs the Property Hub Meet-up group in Dubai, says he has been watching the currency over the past few days.

“We’re waiting for our salaries to come in at the end of the month and then we will send some money," said Mr Battle, who owns 10 properties in the UK. "I’m nervous in case there are problems with tenants not being able to pay rent, so it would be safer to have some cash back home and it’s a good time to send it. Even if it goes down further it’s still a cracking deal."

UK residents looking to permanently move back home soon, have timed their repatriation "perfectly", said Mr Kashyap. "We are getting close to good value – considering the dirham is pegged to the dollar. Opportunities below $1.20 would give good value."