The pound has taken a hit against the safe haven dollar on news of Boris Johnson’s deterioration as he battles coronavirus in intensive care.
Sterling lost six tenths of a cent against the greenback late on Monday evening when it was confirmed the PM’s condition had taken a turn for the worse.
Market analysts warned that the UK currency was likely to be pegged to developments on Mr Johnson’s health as Dominic Raab, the foreign secretary, steps up to assume some of his responsibilities.
The pound had been trading at around $1.23 in advance of the Downing Street statement, and had recovered some of the ground lost during Asia trading overnight.
Its fortunes were in stark contrast to those of equity markets after the week began with solid gains in Asia and in Europe.
The Dow Jones Industrial Average in New York clawed back almost 8% of value lost since markets first took fright from COVID-19 in February.
Tuesday saw a cautious clawback in Asia, despite that lead from New York, while the FTSE 100 built on the previous session’s 3% gain – rising just shy of 3% at the open to hit 5,746 – a rise of 160 points.
UK-focused banking stocks and oil firms saw the biggest gains – the latter a result of growing investor hopes of an output cut to boost weak prices being agreed by major producing nations.
Cineworld was among companies to update on its fortunes – as all its 787 cinemas closed globally.
It suspended the payment of its latest dividend while bosses said they had agreed to defer pay and bonuses.
But market analysts said the pound was a clear focus given Mr Johnson’s condition – marking a new front for its fortunes since the collapse in value witnessed since the Brexit vote in 2016.
Chris Scicluna, head of economic research at Daiwa, said: “Clearly the pound has weakened and that reflects the uncertainty and clarity over how much authority Raab will have.
“From an economic point of view there’s unlikely to be much change.
“But if and when there are difficult decisions to be made, the lack of guidance at the top could be concerning.”
Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo, said: “The currency market has remained fairly calm, but there will be more downside for sterling if Johnson’s condition worsens.”
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