Sterling's vulnerability is exacerbated by dollar strength

The pound fell against the dollar on Tuesday

  

LONDON- The pound fell against the dollar on Tuesday as the U.S. currency gained strength due to its safe-haven properties amid the spread of the coronavirus.

Concerned by the number of growing COVID-19 cases in the United States, where the reported cases are nearly double those in China, investors bought the dollar against sterling and other major currencies considered riskier than the U.S. currency.

The pound traded 0.7% lower at $1.2330. It was weaker against the euro as well, trading down 0.1% at 88.99 pence  .

The pressure on sterling came also from the fact that confidence among British companies slumped in the second week of March as the coronavirus crisis gathered pace, but before the government shut much of the economy to slow its spread, according to a survey published on Tuesday.

In addition, the ratings agency Fitch cut Britain's sovereign debt rating last week, saying the country's debt would surge as the government ramped up spending to offset the near shutdown of the economy in the face of the virus.

"Because of the U.K.'s current account deficit, sterling during this crisis is acting like a high beta currency," which means a currency prone to higher volatility and risk, said Athanasios Vamvakidis, head of G10 forex strategy at Bank of America Merrill Lynch.

For the now, though, the fall in sterling is "mostly a dollar move," he said.

Vamvakidis said he closed his long position on sterling this week when the currency rose close to $1.25. The key driver for foreign exchange markets, he said, including sterling, will be whether government lockdowns in response to coronavirus deliver results.

Leveraged funds have cut their net long positions on the pound in the week to March 24, according to the latest CFTC data.

Sterling remained vulnerable, analysts said, as Britain's current account deficit and large external balance sheet put it in a weaker position compared with other countries in the face of the global slowdown caused by the coronavirus.

(Reporting by Olga Cotaga, editing by Larry King) ((olga.cotaga@tr.com))

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