Pound Opens on Weak Footing Amid Increased COVID Restrictions in China

Monday saw a decline in the pound (GBP) versus a rising dollar (USD) as mounting COVID-19 cases in China, the world’s second-largest economy, prompted further restrictions.

As China deals with rising COVID cases, the risk-sensitive sterling was down 0.6% at 1.1816 and on pace for its biggest daily loss versus the US dollar in two weeks.

Commenting on the predicament of the British pound, Jeremy Stretch, the head of G10 FX strategy at CIBC, noted:

“Sterling has opened the week on the back foot, in line with broad risk dynamics… Broad risk negativity weighs amidst renewed Chinese lockdown fears.”

After reaching its strongest level against the sinking euro (EUR) since early November, the pound gained 0.2% to trade for 86.62 pence against the euro, which has been more adversely affected by China’s news.

Pound Bound for Persistent Bearish Pressure this Week

With public finance statistics due on Tuesday and flash PMI readings due on Wednesday, it is anticipated that the pound may decline even further this week.

Mr. Stretch further noted:

“Weaker sentiment and worsening public finances suggest that the recent correction in real money sterling shorts is already fully valued.”

After Finance Minister Jeremy Hunt announced tax increases and spending reductions last week to convince the markets that the government was serious about battling inflation, the pound experienced increased volatility.

Director-General of the Confederation of British Industry, Tony Danker, stated that in order to promote economic growth and settle a disagreement with the European Union over trade regulations in Northern Ireland, Britain should establish a program of temporary work visas.

On Monday, cryptocurrencies were also at the forefront. The collapse of the cryptocurrency exchange FTX, according to Bank of England Deputy Governor Jon Cunliffe, demonstrated the necessity to bring the crypto industry under regulatory control.

After temporarily reaching its lowest point since December 2020, the price of Bitcoin was down 2.1% against the British pound on the day, at 13.600. It lost about 24% in November, which increased its annual losses relative to the pound to 60%.