London RationalFX

RationalFX : Investors fell to safe havens

RationalFX : Sterling traded lower yesterday as investors fled to safe haven assets as the latest spread of the coronavirus renews fears of a global economic slowdown…….

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During Monday’s trade, GBP fell as low as 1.2887 against USD and 1.1895 against EUR. The bout of weakness in sterling follows reports over the weekend that the virus had spread outside of China, with South Korea, Italy and Iran calling the virus a global pandemic.

Despite sterling moving lower against EUR on Monday, markets expect the coronavirus news flow to keep GBP supported against EUR. It is viewed that any economic slowdown caused by the virus is likely to have more of a negative impact on the EU economy as opposed to the UK.

There have already been signs of the virus having negative implications on both UK and EU businesses. Last week, UK PMI business data reported that service providers had found the coronavirus outbreak to have weighed on overseas bookings and resulted in the cancellation of some orders. This follows a recent survey of German business who expect lower output over the next 12 months as the coronavirus negatively impacts their supply chains.

Next week, UK-EU trade talks will take centre stage for GBP. With the transition deadline to agree a deal only 10 months away, markets will be paying close attention to any developments.

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