March 24, 2020 / 8:28 AM / in 9 days

Battered sterling wins a respite for time being

LONDON (Reuters) - Britain’s pound rallied over 1.5% against the dollar on Tuesday, set for its biggest daily jump since October, winning a respite from a battering in recent days in the face of the coronavirus.

Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

Sterling, along with most currencies, has seen a massive wave of selling against the U.S. dollar, the world’s most liquid currency and the safe haven of choice when confidence evaporates from financial markets.

It has also been hurt by concerns over Britain’s approach to dealing with the coronavirus outbreak, which has seen a more staggered disruption to economic and everyday life than in other countries.

Late on Monday, Prime Minister Boris Johnson ordered Britons to stay at home to halt the spread of the virus, imposing curbs on everyday life without precedent in peacetime.

Currency analysts said the outlook for sterling remained bearish, partly because of the country’s large current account deficit, although broad-based weakness in the dollar was giving the pound a respite for now.

Sterling was last up 1.8% on the day at $1.1763 GBP=D3 - having briefly touched a 35-year low of $1.1413 last week. It was poised for its biggest one-day jump against the greenback since last October.

Against the euro, the pound was more than 1% firmer at 91.74 pence EURGBP=D3 - off last week’s lows of 95 pence.

“The direction for sterling is still down,” said Morten Lund, senior currency strategist at Nordea.

“The big current account deficit has hurt sterling, and so have idiosyncratic reasons such as the increase in coronavirus cases and Brexit uncertainty - although that has taken a back seat for now.”

Britain’s economy is shrinking at a record pace, faster than during the 2008-09 financial crisis, as businesses across the services sector shut in face of the coronavirus, a survey showed on Tuesday.

The monthly Purchasing Managers’ Index - which was conducted last week before the government late on Friday ordered the closure of all pubs, restaurants and other businesses open to the public - points to the economy shrinking at a quarterly rate of 1.5-2.0%.

The data had little immediate impact on the pound, with analysts saying the sharp deterioration in economic activity sparked by the coronavirus outbreak has now been largely factored in by markets.

“The British pound is undervalued. We think it has appreciation potential, particularly against the U.S. dollar over our tactical investment horizon, if the UK embarks on a fiscal stimulus package,” UBS Wealth Management said in a note.

Reporting by Dhara Ranasinghe; Editing by Jan Harvey, Susan Fenton and Carmel Crimmins

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