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Updated: 08:10 28/09/21

Pound hits 4-month low as Covid fears increase

By Michael Pinson, News Editor

19 Jul 2021

The pound has fallen to its lowest level in fourth months against the US dollar today, as markets grow more concerned about a resurgence of Covid-19. Despite a stronger than expected economic recovery so far this year, there are signs this is running out of steam and that things may take a downward turn in the near future.

Sterling has fallen as low as $1.3695 today, a figure last seen in early April. UK markets are increasingly concerned that the country faces further lockdowns in the near future following the government decision to end all restrictions today, despite soaring case numbers and an incomplete vaccination program.

190721 GBP USD Chart

GBP-USD Chart courtesy of BBC.

Businesses are reporting significant staffing difficulties as the surging case numbers cause a knock-on increase for people being asked to isolate by Test and Trace. Despite the ending of restrictions many businesses still find themselves unable to operate in a normal and profitable way. Leisure and travel industries in particular are failing to see their business bouncing back, and hopes of a summer recovery are fading fast, with the winter also unlikely to see any improvement if current trends continue.

These fears are not constrained to just the UK however, the spread of the Delta variant worldwide is sparking similar fears. Many countries in Europe are seeing rising numbers only a few weeks after ending their own lockdowns. The US vaccination program looks to be falling short, without sufficient numbers of people vaccinated to help stem the spread.

The result has been a much more risk-averse market so far in trading. Stocks are falling with the FTSE 100 down 2.2%, and the DAX and CAC indexes also down around 2.3%. Futures point to a fall to come in the US when trading begins this afternoon. Investors have piled into both the dollar, and US treasury bonds as they look for safer investments than equities.

Despite the search for safe havens, the stronger dollar has also put pressure on gold. In dollars gold is down 0.7% so far today and has slipped below the $1,800 per ounce level once more. This has been mitigated in the UK thanks to the weaker pound, down only 0.3% and holding above £1,300 per ounce at the time of writing. Volatility remains high however, and with investors looking for safe havens and bond yields falling this could help support gold.

The recent surge in cases is yet another reminder to investors that the economic impact of the pandemic is not over. The increase in debt, both for companies and governments, poses a risk for private and public finances. The trillions in printed money has already seen inflation climbing far above central bank targets. This also discounts of course the risk of a vaccine-resistant variant emerging as society reopens and the implications for further lockdowns. Many eyes are therefore on the UK to see whether the country can truly reopen successfully or not.
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