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Will COVID-19 uncertainty affect the pound?

The latest coronavirus developments in Britain could soon saddle sterling with political risk.

So far the U.K. currency is weathering the crisis but it’s unclear if that will continue.
So far the U.K. currency is weathering the crisis but it’s unclear if that will continue.

As the COVID-19 pandemic continues to alter daily life across the globe, it was unfortunately announced that British Prime Minister Boris Johnson checked into a London hospital on April 5 with symptoms related to the virus. His health reportedly worsened and he was moved to the ICU, where he currently remains. While Britons rally around their leader in hopes of a quick recovery, tensions are understandably high as the country’s concerns over the virus increase. What does this new level of uncertainty mean for the pound?

So far the U.K. currency is weathering the crisis but it’s unclear if that will continue. Temporarily, Foreign Secretary Dominic Raab is taking over tasks for Mr. Johnson, though he has a reduced set of powers. Additionally, there is no formal process in place, should the PM require additional time away from his post. Though it is hoped that he will make a swift recovery, Britain’s constitution doesn’t formally designate a deputy prime minister who could assist in a more official capacity, unlike other nations. At the moment this distinction does not appear to be causing concerns, though any additional bad news for the U.K. could spell more volatility for sterling.

Of course, the pound is no stranger to political uncertainty which continues to stalk it, albeit in ebbs and flows, with the Brexit situation persisting. Britain exited the EU earlier this year and is now observing a transition phase until year-end when it hopes to have a long-term trade agreement in place.

The prospect of increased volatility for sterling suggests its direction in April could potentially resemble March when it fluctuated wildly between roughly 1.14 to 1.32.

In the meantime, the pound will be closely watched in the coming days in the hopes that it will remain relatively stable during this challenging time.