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Below are Views On Sterling’s stellar performance post Covid-19 makes it investor favourite by Heena Naik, Research Analyst - Currency, Angel Broking Ltd

Undoubtedly, the month of March and the year 2020 was pretty disastrous for the Sterling Pound as the blow of Covid-19 had pushed the currency to its lowest level in 35 years. GBPUSD dived deeper towards 1.1404 levels in the month of March 2020; a drop of almost 12 percent when compared to the price in January 2020 i.e. 1.3259. Despite the humongous fall, the Great Britain Pound somehow managed to outpace its peers grabbing the eyeballs of many investors. Both GBPUSD and GBPINR has surged by more than 18 percent from March 2020 till the present date i.e. 30-7-2021. Let’s take a walk through of all the factors that caused an uptrend in the currency.

Starting with March 2020, the Novel Coronavirus entered first entered UK in the month of February 2020. Thereafter, the virus with a swift momentum surged and peaked in the month of April 2020. Apparently, the lockdown in United Kingdom were put in place some weeks too late to alleviate the rapid spread of the virus. The first nation-wide lockdown was announced on 23rd March 2020 by the UK government. People were asked not to leave their homes unless for essential needs while gatherings of more than two people were banned. All non-essential stores, places of worship, gyms, libraries and playgrounds had been closed. The various lock-down measures in response to coronavirus halted economic activity in certain sectors and harshly disrupted others. Due to this, United Kingdom experienced the sharpest economic contraction since the peak of the financial crisis. It was not only the economy that was seen collapsing, financial markets too tasted the sour medicine of Covid-19. Both equity and currency market of Britain moved towards South.

With respect to Sterling Pound, the fall in the currency amplified more after the Bank of England slashed the interest rates by 0.5 percent to 0.25 percent, a record low – in a bid to prop up the economy. All of these tensed movements acted as a reflection of the UK economy’s unique exposure to the disruptions ripping through the global economy, driven by the ongoing coronavirus pandemic. In addition, surge in the US Dollar Index was another prime factor for Pound’s downfall. Fears of a liquidity squeeze caused the dollar to become the most sought-after currency in the world. While every asset, whether physical or financial, was falling like a stone, the dollar index rocketed through the 100 level and was in demand owing to lack of clarity about the global situation. Things started to improve from the month of June 2020 after the government came up with various measures and reliefs to boost the economy which improved the investor sentiments. From thereon, the currency started to move north without any obstructions.

Sterling Pound faced a temporary blip in December’20 on back of a new coronavirus strain found in the country along with the uncertainty stemming from Brexit trade deal negotiations. This resulted in UK government ordering an even stricter Covid lockdown in London ahead of Christmas bringing the situation under control once again. By now, the pace of vaccination has increased giving a relief to markets and the common man. Not only this, the agreement of a Brexit deal with the EU, Britain’s largest trading partner, before Christmas had also provided some relief for the pound, despite evidence of some difficulties in the new trading regime.

In February 2021, the Pound currency hit $1.40 levels for the first time in almost three years on expectations that the UK’s Covid-19 vaccination rollout will help the economy to rebound more quickly. More than 15 million people in the UK had been offered their first coronavirus vaccine by the middle of February, leading traders to bet that the economy would be able to reopen more quickly than in other European countries, where the vaccination rollout has been slower. All of these factors worked in favor of the Sterling Pound that moved in only one direction towards north. It touched the higher levels of 1.4248 in June’2020; making it the most sort after currency.

Presently, the UK government has lifted quarantine for fully vaccinated from the US and European Union countries which meant that such travelers would no longer have to undergo the mandatory 10-day quarantine. Not only this, most legal restrictions on social contact has been lifted. There are now no limits on the number of people who can meet or attend events. Also, face coverings will be recommended in some spaces, but not required by law. However, the UK Prime Minister Boris Johnson has urged the Britons to remain cautious on concerns surrounding the spread of Delta Variant.

To conclude, the present scenario is working well in favor of GBPUSD which is influencing GBPINR as well despite the fall in USDINR. There is a possibility that both the currencies may continue with its positive trend towards north considering the fall in coronavirus cases in Britain along with the weaker US Dollar Index post the dovish FOMC Monetary Policy that took place on 28th July’21. In the month of August 2020, GBPUSD (CMP: 1.3962) is expected to move higher towards 1.4120 levels whereas GBPINR (CMP: 103.86) is expected to move towards 105.80 levels.

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