The British pound has suffered a historic plunge to its lowest level since 1985 as concerns mount about the economy amid the coronavirus outbreak and as investors flock towards the dollar.
Sterling was last down four per cent against the dollar at $1.158, its lowest point since the economic turbulence of the 1980s and one of the biggest one-day drops on record.
The fall came despite chancellor Rishi Sunak yesterday unveiling a £350bn package of measures to support the UK economy.
With much of the country self-quarantining, offices and factories closed, and businesses shuttered, investors are bracing themselves for an enormous economic hit in the UK and around the world.
Funds are even selling up their so-called safe-haven assets such as government bonds as their customers demand their money back amid chaos in the markets.
“With investors desperately looking for something resembling a safe haven, the dollar has become a go-to for nervy traders, causing the pound to get absolutely pummelled,” said Connor Campbell, financial analyst at trading platform Spreadex.
UBS strategist Thomas Flury said: “The main reason for dollar demand is liquidity concerns: In volatile times, companies and investors need dollars to settle transactions.”
He added: “As long as these concerns persist, we expect GBP/USD to remain on the back foot.”
The US dollar index, which charts demand for the greenback compared to other currencies, rose 1.8 per cent.
The pound was also down 2.5 per cent against the euro at €1.069. Chris Scicluna of Daiwa Capital Markets said the plunge in sterling was also driven by the Bank of England’s refusal to rule out policies such as direct funding of the government.
He said: “With the pound already weakened by Brexit concerns and the UK’s sizeable current account deficit, the talk of possible direct monetary funding of the UK government appeared to put the skids under sterling.”
The US Federal Reserve has repeatedly stepped in over the last two weeks to try to ease concerns that banks withdrawing from the market will cause dollar lending to dry up.
On Sunday night it added more firepower to its so-called swap lines, which provide central banks around the world with dollars which they can pass on to financial institutions in need.