New coronavirus strain hits pound as investors flee to dollar
- 22 December 2020
The British pound and the euro fell on Monday as investors sought refuge in the dollar, after a fast-spreading new coronavirus strain shut down much of the United Kingdom and disrupted international freight, APA reports citing Reuters.
Sterling fell as much as 2.5% against the dollar in morning trading with the yield on two-year British government bonds falling to a record low as Prime Minister Boris Johnson sought an emergency response to the crisis.
European stock markets fell after most of Europe cut off transport with the UK, sowing chaos for families and companies just days before Britain exits the European Union.
“The British horror stories of a shortage of goods after a hard Brexit are taking on a whole new drive - for a completely different reason,” said Commerzbank strategist Ulrich Leuchtmann.
Adding to the pressure were growing fears the UK could crash out of its transition period out of the EU on Jan. 1.
Britain said the EU should shift position to open the way to a post-Brexit trade deal, but there was no sign a breakthrough, notably on fishing rights.
“The EU offer over the weekend was a very generous one, and countries like France, the Netherlands, Denmark, Belgium, and Ireland are very unlikely to make a further offer,” Ireland’s Foreign Minister Simon Coveney told RTE Radio.
At 1202 GMT, the pound was down 1.91% to $1.3270 and losing ground against the euro, down 1.23% to 91.66 pence. The euro was also falling against the dollar, down 0.65% at $1.2175.
But unlike the pound, which faces structural challenges when it leaves - deal or no deal- the EU, the euro’s strength isn’t expected to suffer structurally, said Holger Schmieding, chief economist at Berenberg.