Coronavirus sends Pound free falling. Overreaction or here to stay?

The Pound has has seen its largest decline against the Euro since the crash of 2016 and further losses cannot be ruled out for the days ahead given a strong economic performance from the Euro and the ever alarming coronavirus situation that could weigh disproportionately on the Pound Sterling.

Sterling has endured heavy losses in the last few days as further cases of Covid-19 are confirmed throughout the world and now the United Kingdom with 36 cases being confirmed here as of this morning.

The situation continues to evolve rapidly and many central bank sources believe that the markets may be blowing it out of proportion as alarm causes sell offs and billions are wiped off the stock markets.

Furthermore if the World Health Organisation (WHO) declares a pandemic I believe further sell offs and a decline in the strength of the Pound among other affected currencies across the globe.

However with the Americans beginning human trials on a vaccine we may see a sense of calm return to the markets if the worlds governments can contain Covid-19’s spread and gain an upper hand on the virus.

There are no major economic figures expected from the UK in the week ahead although the Brexit negotiations will begin in the shadow of the coronavirus story and with each side having conflicting demands and a confrontational stance we could see some volatile movements on the currency markets. 

This matters for the Pound in the medium term after the government said last week the UK could walk away from the trade talks with the EU if the broad outline of a deal has not been reached before June.

The Euro outperformed all major currencies other than the Japanese Yen last week as global stock markets fell apart and investors walked away from emerging market currencies in their droves. This looks set to continue in the short-term putting further pressure on the Pound although analysts say that the single currency will come back down to earth before long.

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