The pound collapsed on Monday. What caused its decline?

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The pound collapsed on Monday. What caused its decline?

The British pound hit an almost two-month low on Monday due to speculation about negative interest rates. After a week of deadlocks with the EU over a post-Brexit trade deal, the sterling traded by 0.1% to $1.2091 at last.

On Saturday, the Bank of England’s chief economist considered negative interest rates, causing the currency’s further decline. The sterling plummeted down to a seven-week low, at 89.45 pence per euro, as well as a four-month low at 53.14 pence per Aussie.

On the other hand, the Australian Dollar strengthened moderately, but it remained below 65 cents, at $0.6425. The Australian Financial Review newspaper reported about conciliatory remarks from China’s foreign ministry, boosting the Aussie.

The leader of the EU’s largest political alliance is demanding a temporary ban on Chinese takeovers of companies suffering from a crisis. The conflict and uncertainty around it have had a negative impact on Australia, as it depends on trade with China.

What about the U.S. dollar?

The dollar was steady on Monday. It traded at 100.380 against the majority of other Asian currencies after rallying last week.

Even though concerns about global tensions with China overshadowed the improving sentiment from easing of restrictions, the greenback managed to stay afloat. As Japan fell into recession, the U.S. currency edged up against the Japanese yen, at 107.25 yen per dollar.

Traders are worried, as they see growing tensions between the U.S. and China. Investors supported the U.S. dollar because of that – noted Kim Mundy, Commonwealth Bank of Australia FX analyst.

Furthermore, the Federal Reserve Chairman, Jerome Powell, dashed the hopes for a fast recovery. On Sunday, he stated that even under the best of circumstances, it would be a long road to a rebound.

Powell also declared that people would have to be fully confident for the economy to fully recuperate. They may have to await the arrival of a vaccine as well.

U.S. retail sales collapsed by 21.6% on a year-on-year basis last month, while 20 million Americans lost their jobs.

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