Published: April 9th, 2020
Sterling fell against the euro and greenback this week after UK PM Boris Johnson was admitted to hospital with coronavirus symptoms.
The news kicked off a drop in the pound at the start of the week. Sterling was hammered further the next day when it was announced that Johnson had been moved to an intensive care unit for treatment.
Reverberating around the globe, the news added to the yen’s fall against the dollar when Japanese Prime Minister Shinzo Abe declared a state of emergency to head off an alarming uptick in COVID-19 infections.
The dollar had been on the back foot against the euro following US jobs data showing an unprecedented sudden rise in unemployment claims as the coronavirus pandemic pushes the American and global economies into deep recession.
Forex markets will be watching the UK Prime Minister's health going forward and will likely consider any further health declines to be negative for the pound.
Against the backdrop of Brexit negotiations and a new government still finding its feet, Johnson's illness creates further political uncertainty, which typically tracks against Sterling.
Downing Street initially said Johnson was being treated as a ‘precautionary step’ after testing positive for the novel coronavirus and showing steadily worsening symptoms.
His deteriorating condition has seen the government scrambling to signal certainty back to markets, with the appointment of Foreign Secretary Dominic Raab as Johnson’s temporary stand-in.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities, told Bloomberg that holders of sterling and sterling assets would see the British PM’s hospitalisation as a matter of grave concern.
With coronavirus cases yet to reach their peak in Japan, markets may be looking for a combined negative effect deriving from Johnson’s illness and Abe’s emergency declaration, he added.
Britain's constitution is another factor weighing down the pound. Rather than a coherent set of rules and principles, it fails to delineate a formal deputy or caretaker role if the prime minister is suddenly deemed too ill or otherwise unfit to lead the government.
A report in the Times newspaper said Johnson was taken to St. Thomas’ Hospital last Friday, just across the river from Westminster and given oxygen treatment. Number 10 said it was not an emergency admission and no ambulance was required, however, Johnson's doctor wanted him to be assessed in hospital.
Downing Street said Johnson had shown a persistent high temperature and remained in isolation after the minimum seven-day period.
Last week the Prime Minister's office stressed that Johnson remained ‘firmly in charge’ of the government, however Foreign Secretary Raab has now taken over Johnson’s duties while he recovers.
COVID-19, which first emerged in China’s Wuhan state late in 2019, has rapidly spread into a global pandemic infecting at least a million people, and by many estimates likely many more than that. It has killed at least 70,000 and pushed vast sections of the global economy into temporary stasis.
News of Johnson’s worsening illness came on the back of a pound selloff against the dollar last week, following news that the British services sector had experienced its worst month since statistics were first recorded. The sector data stoked fears about a worsening downturn when a nationwide lockdown had halted so much business activity.
PMI numbers for the services sector from IHS Markit, which measures monthly changes in activity, fell to 34.5 – the worst reading ever recorded.
With pubs, restaurants, events, catering and non-essential retail set to remain in lockdown for weeks or even months, many analysts fear worse news to come, particularly as the spread of coronavirus and the daily toll of recorded deaths seem to be rising sharply.
The government is trying to put on a brave face amid a torrent of bad news. Health Secretary Matt Hancock tentatively suggested this week that infections in Britain could peak by April 12. However, that prediction is looking less realistic by the day.
‘That is one perfectly possible outcome,’ Hancock told journalists. 'However, I defer to the scientists on the exact predictions.’
Despite a strong showing last week, the pound started to give back some of its advances as markets closed on Friday, losing value against the euro, dollar and other currencies seen as less risky like the Swiss franc.
Analysts have noted a surge in demand for cash as traders exit positions and businesses prepare to tighten belts ahead of a looming global recession. Because GB relies so heavily on its financial services sector, the country is suffering the impact of a mega cash withdrawal, which naturally affects the pound.
News about Johnson’s condition will dominate forex analysis of Sterling this week, while European leaders try and agree a collective response to shore up the value of the euro.
Many analysts are looking for a joined-up fiscal response as the most effective response to the Eurozone’s dramatic slump in commercial activity. Spain, Italy, and the dollar last week, following news that the British services sector had experienced its worst month since statistics were first recorded. The sector data stoked fears about a worsening downturn when a nationwide lockdown had halted so much business activity.
PMI numbers for the services sector from IHS Markit, which measures monthly changes in activity, fell to 34.5 – the worst reading ever recorded.
With pubs, restaurants, events, catering and non-essential retail set to remain in lockdown for weeks or even months, many analysts fear worse news to come, particularly as the spread of coronavirus and the daily toll of recorded deaths seem to be rising sharply.
The government is trying to put on a brave face amid a torrent of bad news. Health Secretary Matt Hancock tentatively suggested this week that infections in Britain could peak by April 12. However, that prediction is looking less realistic by the day.
‘That is one perfectly possible outcome,’ Hancock told journalists. 'However, I defer to the scientists on the exact predictions.’ Will the pound rebound?
Despite a strong showing last week, the pound started to give back some of its advances as markets closed on Friday, losing value against the euro, dollar and other currencies seen as less risky like the Swiss franc.
Analysts have noted a surge in demand for cash as traders exit positions and businesses prepare to tighten belts ahead of a looming global recession. Because GB relies so heavily on its financial services sector, the country is suffering the impact of a mega cash withdrawal, which naturally affects the pound.
News about Johnson’s condition will dominate forex analysis of Sterling this week, while European leaders try and agree a collective response to shore up the value of the euro.
Many analysts are looking for a joined-up fiscal response as the most effective response to the Eurozone’s dramatic slump in commercial activity. Spain, Italy, and France are all promoting creation of a new debt instrument or 'coronabond,' to pull in fresh funding and assist the region’s hardest-hit economies.
Northern European states, most notably Germany, Austria, and the Netherlands are so far resisting the idea, pointing to the need to pool risk and worried that their economies and electorates would need to fund the programme disproportionally.
Important economic data will also have an influence, with the latest UK GDP and Trade Balance numbers due out this month.
Given all that’s happened in the last few days of trading, the Pound-Dollar exchange rate has shown remarkable stability, even against the increasing strength of the greenback since the start of April.