Sterling Cuts Gains as Analysts Flag Further Coronavirus Economic Woes Ahead

© Reuters.  © Reuters.

By Yasin Ebrahim – The pound erased the bulk of its gains against the dollar on Wednesday as timid inflation data and worries of a deeper coronavirus hit to the U.K. economy weighed on sentiment. 

rose 0.1% to $ 1.2306, but had traded as high as $ 1.2387 intraday.

The UK consumer price index (CPI) slowed to 1.5% last month, from 1.7% in February, according to the Office for National Statistics.

The slowing price pressures were weighed down by clothing costs and lower energy prices in the wake of the Covid-19 pandemic, with analysts warning of further economic pain ahead, which will likely hit the pound.

Both the U.K. and U.S. have taken a bigger hit than others from the Covid-19 pandemic, but the dollar will fare better as it functions as the world’s reserve currency, MUFG Bank said.

“The costs (incurred by) the U.K. government from suffering a worse Covid-19 outbreak than possibly all other countries in Europe will quickly stack up, especially as investors begin to raise the probability of a more extended lockdown, or a much slower reversal relative to the rest of Europe,” said MUFG analyst Derek Halpenny.

“While the U.K. and the U.S. look to have taken a bigger hit from Covid-19, the U.S. possesses the global reserve currency, the U.K. does not,” Halpenny added.

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