Sterling lower despite huge stimulus package

Mar 18, 2020

The UK government announced a huge and unprecedented stimulus programme yesterday to try and allay the economic impact of the coronavirus.

£330 billion worth of loans and aid will be made available (the equivalent of 15% of the UK’s GDP) with the pledge to do more if needed. The measures announced by Chancellor Sunak included business rates and mortgage holidays, funds for those industries worst affected (namely retail/hospitality), and grants/loans for small/medium-sized companies.

Despite the historic announcement, Sterling has failed to make any gains and remains under pressure. This is likely due to the fact that we are receiving news of similar packages from around the world and as the current risk-off sentiment continues. Yesterday the US government outlined their own fiscal plans with Trump proposing a whopping $1 trillion of stimulus. Some of the suggested measures involve cash handouts to households, the deferral of taxes and generous business loans to small companies.

With stock markets down again today, it seems that nothing can stop the panic selling at this stage. This is a health crisis so it’s likely the market are waiting for some signs that the severity and spread of the virus can be improved before buying back into riskier investments. Vaccines are being rapidly developed but clinical trials will mean we’re still months away from their supply. Nevertheless, China, Korea and Japan are showing hugely reduced levels of disease transmissions/deaths and more glimmers of hope like this should help.

As a result, the Pound has hit fresh 6-month lows against the USD and is not far away from the lowest levels since 1985. The GBP/EUR is down around 1% this morning and now trades at a 7-month low.

Additional health, lockdown, and stimulus news – that come in at a breakneck pace – are set to rock markets.