British pound falls as Coronavirus contagion risks persist

British pound falls as Coronavirus contagion risks persist

  • British pound fell against its major global peers as key retailers filed for bankruptcy.
  • The pound did not react to Q4 GDP data, which showed the economy stagnated in the quarter.
  • UK Coronavirus cases are slowing but risks to the economy is rife.

The British pound index edged lower as investors started to worry about Coronavirus contagion risks after UK companies started going into administration. BrightHouse, a rent-to-own retailer went into administration a few hours after Italian restaurant, Carluccio’s filed for bankruptcy.

The market is concerned that these bankruptcies will continue as the country remains in lockdown. This is because while most retailers are not operating, their costs such as salaries, depreciation, and rent still remain.

Another concern is that all this could lead to contagion, which will hit the financial sector players like banks and other lenders. Obviously, if retailers can’t pay rent, it means that mall owners will not be able to service their debt. Other industries could be affected too. Just yesterday, easyJet announced that it was grounding all flights, putting thousands of jobs at risk.

The British pound declined by almost 1% against the US dollar, 0.40% against the euro, and 20 basis points against the Australian dollar.

United Kingdom Q4 GDP data

The sterling did not react to the Q4 GDP data released by the Office of National Statistics (ONS). The data showed that the economy’s growth was unchanged in the fourth quarter. On a YoY basis, the economy expanded by 1.1% as was expected by the economists surveyed by Refinitiv.

In the quarter, business investment declined by 0.5% after declining by another 1% in the third quarter. Meanwhile, the current account dropped by more than £5.6 billion, which was better than the £15.9 billion decline in the third quarter.

Brexit was the main reason why the economy lagged in the fourth quarter. Data released earlier this year showed that many companies paused making investments ahead of the December 12 election. This is because the tight between Boris Johnson and Jeremy Corbyn was tight and not many people believed the polls.

Similarly, many people avoided spending because of these tensions. This was evidenced in the retail sales data, which dropped by 0.6%, according to data by the ONS.

UK Coronavirus numbers slowing

Meanwhile, investors are focused on the current Coronavirus pandemic, which has led to the current lockdown. According to Jenny Harris, the country’s Deputy Chief Medical Officer, the pace of new infections is slowing.

Still, he warned that the current lockdown will continue for several more months as the country works to intensify the tests.

The news came on the same day as the World Health Organization (WHO) said that new cases in Europe were starting to slow. Indeed, Italy and Spain, the main hotspots have seen reduced numbers.

British pound technical analysis

British-Pound Technical Analysis
British-Pound Technical Analysis

The EUR/GBP pair has been declining since March, 19 when the pair topped at 0.9500. On the four-hour chart, the pair is about the 50% Fibonacci Retracement level, which is drawn by connecting the highest and lowest levels in March. The pair has also formed a hammer candlestick pattern. Therefore, there is a likelihood that the pair may resume an upward trend.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

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