The British pound is continuin its decline reaching its lowest point in 2 months, as investors worried about a potential second lockdown in the UK. GBPUSD declined by 0.4% to 1.2680 after Foreign Secretary Dominic Raab said he doesn’t rule out a lockdown.
On the other hand, government bonds have surged, sending yield down 2 bps. Prime Minister Boris Johnson announced new rules yesterday aimed at curbing the surge in COVID-19 cases.
The new rules may put a cooling effect on the UK government’s efforts to open its economy and revive growth, as the first lockdown in March sent the economy into the UK’s worst recession in more than a century in UK. These rules come alongside the looming ending of support for furloughed workers and the risks of a messy Brexit. Although they are far more limited in scope than the full lockdown imposed earlier in the year, investor confidence is likely to be hugely impacted.
According to JP Morgan, if the government chooses to shut down the hospitality sector for two weeks, this could lead to decline in GDP of at least 2% and increase the need for further stimulus from the Treasury and Bank of England.