The pound exchange rate weakened against the United States dollar (US) in trading Wednesday (2/26/2020) yesterday. Coronavirus outbreaks that spread rapidly outside China made market participants predict that many central banks will reduce interest rates to stimulate the economy, including the Bank of England (BoE).
The pound ended trading Wednesday at US $ 1.2903, down 0.78% on the spot market, according to Refinitiv data. While today, Thursday (02/27/2020) traded at the level of US $ 1.2912, edged up 0.07%.
The surge in cases of coronavirus or Covid-19 occurred in South Korea, Italy, and Iran. Based on data from the ArcGis mapping satellite from John Hopkins CSSE, the number of Covid-19 cases in South Korea has now reached 1,595 people, with 12 people dead. South Korea is now the country with the second-largest number of coronavirus cases after China, which is the center of the outbreak.
The death toll in Italy is also 12 people, with infected people, while Iran reported 16 people died and infected 95 people. Italy is now the country with the third-highest number of cases, while Iran is fifth.
Corona Virus Slows Economic Growth
Until now in the UK alone there have been 13 positive cases of coronavirus reported. In China, which is the epicenter of the corona outbreak, the death toll is 2,715 and has infected more than 78,000. Globally the coronavirus has killed 2,762 people and infected more than 81,000 people.
Also, the coronavirus produces "derivative products" which is an economic slowdown, starting from China. The global research institute, Moody's Analytics, predicts that the coronavirus can reduce China's economic growth in 2020 to 5.4% from last year's 6% growth rate.
"In our basic scenario, it is likely that the spread of the outbreak will remain on hold in China and will still occur in the spring. The Chinese economy will contract in the first quarter of this year, and economic growth this year will be cut to 5.4%," Mark said Zandi, Chief Economist of Moody's Analytics in his research, Wednesday (2/26/20).
Besides the impact on the Chinese economy, the US economy will also be predicted to slow down by 0.6% and can only grow 1.3% in the first quarter of 2020. This year, the US economy is predicted to slow down by 0.2% from the initial prediction of 2%, meaning that it only grows 1.7%.
With the decline in economic growth projections in China and the US, the impact is predicted to make world economic growth slow down 0.4% to 2.4% this year from an initial prediction of 2.8%.
The Growth of the World Giant Economy Slows, Other Countries Are Dragged
When the two world economic giants experience an economic slowdown, other countries can also be dragged down, and "force" the central bank to reduce interest rates to further turn the wheels of the economy.
Reuters reported, market participants now see the chance the BoE will cut interest rates by 25 basis points (bps) to 0.5% in August.
Not only the BoE, the US central bank (Federal Reserve / Fed) is also predicted to do the same thing. Based on CME Group's FedWatch data, market participants see a probability of 78.3% interest rates will be cut by 25 basis points to 1.25-1.5% in June.
As a result, the weakening of the pound is still quite limited. Moreover, market participants are still waiting for the announcement of the British budget draft on March 11. Under the command of Prime Minister Borish Johnson, the British government is predicted to increase state spending to spur the economy.
GBP / USD fell below 1.2950 with fear of the coronavirus gripping the market. The mandate of the European Union for the post-Brexit talks confirmed a request for the playing field level which was rejected by Britain.
