Sterling fell against the US dollar following global stock markets’ plunge. The fall was driven by a sell-off in Chinese shares, which dampened risk sentiment and led to increased trading of the US dollar ahead of a US Federal Reserve policy meeting.

Risk-averse market sentiment

As we have seen recently, the pound is sensitive to how global markets are fairing as well as how the pandemic is progressing. According to some analysts, the pound could find support if cases continue to fall, especially since data on Monday showed that new Covid-19 cases in Britain had fell for five consecutive days. Market analysts have suggested that the pound’s fall was mainly driven by nervous and risk-averse market sentiment due to the sell-off of Chinese tech stocks. Risk trades have been hit as a result and so has the pound.

For investors, a lot will depend on the two bank meetings coming up: the two-day Fed meeting later on Tuesday, and the Bank of England meeting next week. The BoE’s interest-rate setter Gertjan Vlieghe while speaking in an event explained that the the central bank should not cut back its stimulus before 2022, as the recent rise in inflation is temporary while Covid-19 poses a significant risk to growth.

Covid-19 declines offer a boost

Earlier on Tuesday, the pound got a boost after the number of new positive cases fell significantly. Investors will expect to see more statistics about the numbers of cases and deaths before they can make informed decisions.

The recent rising cases had an impact on economic data which showed that the economy was growing at a slow pace as businesses complained about the rising cases and employees self-isolating after coming in close contact with someone who had been tested positive. The ongoing pandemic and the risks posed by it have confirmed that it is perhaps too soon for the Bank of England to raise interest rates, as it needs to continue its financial support rather than tighten its programme. The rise of the Delta variant of Covid-19 combined means that the bank needs to continue offering support to the economy.  

If Covid cases continue to fall then the pound could find support. The UK has also acted as a test case, and it remains to be seen whether its decision to reopen its economy has been the right one. Nonetheless, analysts argue that data has shown that the UK economy does not depend on the virus and that vaccines are working. If the country does succeed to beat the Delta variant, without its economy being massively affected with further restrictions, then their example could be followed by other economies. This could further help the pound which is influenced by global sentiment.

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The improved global market sentiment and the slowing of Covid-19 case rates has helped the pound to recover, but Brexit anxieties could pose a potential threat to the currency.

Covid-19 and the NHS app

This week alone 96 deaths have been reported, the highest number since March. While on 1 June there were 0 coronavirus deaths, 1,114 deaths have been reported since then with 73 deaths being reported on Wednesday (21 July). The vaccination programme has not managed to break the link between infections and fatalities, with the total number of deaths from the pandemic reaching 128,896. However, new cases have not risen considerably, as the number of new cases that were reported on Wednesday was 44,104, slightly higher than the previous week’s 42,302. As it stands, 46,388,744 people have been vaccinated at least with the first shot in the UK. According to statistics, around 39,035 people had their first jab on Tuesday, while 161,279 people had their second shot yesterday, with 36,404,566 people now being fully inoculated.

With the ongoing self-isolation of workers due to coming into close contact with a positive coronavirus case, businesses have been affected, while the government has expressed its apologies for the inconvenience. Director of food and sustainability at the British Retail Consortium Andrew Opie told The Times that the "pingdemic” has put pressure on retailers who found it difficult to keep stores open and shelves stocked, demanded that the government needed to act fast.

Boris Johnson, speaking at the last PMQs before the summer recess, said "everybody understands the inconvenience of being pinged". The prime minister himself had to isolate after coming into contact with Covid-positive Health Secretary Sajid Javid last week.

Labour leader Sir Keir Starmer accused the prime minister of the mixed messages regarding the NHS Covid-19 app and said: "When it comes to creating confusion, the prime minister is a super-spreader.” Starmer had to isolate himself following one of his children being tested positive.

According to the figures from the ONS, around 9 in 10 adults in all parts of the UK could possibly have Covid-19 antibodies with the estimates ranging from 88.6% in Scotland to 92.6% in Wales, 90.0% for Northern Ireland and 91.9% for England.

Brexit and Covid-19: How will the pound fair?

It simply depends on improved market sentiment and the management of the Covid-19 Delta variant. The near-term outlook for Sterling will be determined by concerns regarding the Delta variant and whether investors have fully priced in the news.  If they have done so, then possibly the currency and market sentiment will improve. 

Brexit remains a threat to the currency too, as the UK and EU could find themselves at the opposite end of the table over the Northern Ireland question. On Wednesday, the UK announced its intention to renegotiate certain points included in the Northern Ireland protocol, and argued that in its current form it will create problems for trading goods between Great Britain and Northern Ireland. The release of the command paper outlining the UK government proposals about how the Protocol should be changed poses a major challenge to the EU.  This move could potentially hurt the pound, according to analysts. However, they believe that this could become a more serious concern as we move closer to 1 October with potential legal battles and EU threatening the UK with the imposition of trade sanctions.

Are you transferring funds abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

The British currency fell against a number of currencies including the US dollar and the euro, as market fears of a new wave of infections have returned. Sterling’s fall follows a rise in infections in the UK, despite the easing of restrictions. The new Delta variant is posing a genuine threat to the globe and world economies and has created concerns regarding global growth. With the pandemic persisting and the new variant being highly transmissible, investors have turned toward safe haven currencies such as the US dollar.                                                                                                                    

For global economies and the UK in particular, Covid-19 will remain a constant threat that poses an ongoing risk to growth and economic recovery. The currency outlook for the pound and world currencies depends on the pandemic’s trajectory and for how long markets might be potentially affected.                                                                                                                                                     

Pingdemic

The so-called pingdemic has also hurt the currency as it is causing problems to businesses whose workers have to isolate after being pinged by the NHS app. The NHS app pings someone after they have spent 15 minutes or more in close contact with someone who has tested positive for Covid-19, and they are then advised to self-isolate for 10 days.

According to the Financial Times, businesses have urged the UK government to take control of all the “pingdemic” confusion and to take action to confront the rapid rise in the number of people being told to self-isolate. Unions have called for more support for isolating workers while businesses who want things to go back to pre-pandemic normality want the rules to be relaxed. With numbers of cases increasing and the Covid app potentially “pinging” more people, businesses could be severely impacted. The latest figures from the NHS show that more than 500,000 alerts were sent to the Covid app users in the week to 7 July.

Iceland and Sainsbury’s have reported high numbers of workers isolating, while hundreds of factory staff including those of Nissan’s plant in Sunderland were told to self-isolate. Rolls-Royce stated that the impact was serious and that if more workers were to self-isolate, it could potentially lead the company to halve production.  

The Trades Union Congress (TUC) urged ministers to reinforce the compulsory use of masks on public transport and in shops, but masks in England will no longer be compulsory from Monday. The TUC is also calling for statutory sick pay to be increased from just £96.35 per week to the equivalent of the living wage.

In relation to criticisms of the app, Sir Jonathan Montgomery, former chair of the ethics advisory board for the NHS Test and Trace app, said that “We need to think about the consequences of being pinged.” He added: “When the app was designed, we didn’t have the ability to reliable home test, we didn’t have very many people jabbed, and the big worrying thing about this virus is that you can pass it on before you know you have it. So, I wouldn’t be changing the pinging but I would be changing the consequences of being pinged.”

Bank of England: “Too soon to raise interest rates”

If the release of upcoming economic data disappoints, the pound could weaken further. Such risks and the general concerns regarding the pandemic have been highlighted by the Bank’s Monetary Policy Committee (MPC) external member, Jonathan Haskel, who said that it was too early to raise interest rates and end the quantitative easing programme. The rise of the Delta variant means that the Bank will need to continue its monetary support and avoid risks. Haskel said: "The risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation. For the foreseeable future, in my view, tight policy isn’t the right policy.” Haskel’s stance might disappoint those who want to see a stronger pound, but it remains to be seen how the pandemic proceeds and how the government handles the rise in infections and demands from both businesses and unions.

Are you transferring funds abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are transferring funds to pay your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.