FX.co ★ Pound is victim of COVID-19 and Brexit

Last week, the British pound showed a positive dynamic. However, Monday was fatal for the British currency. It lost almost 1% in price, and there are risks of further falls. Investors' pessimism about the financial market situation is only increasing as the speed of the coronavirus spread worries more and more.

Obviously, the United Kingdom has been swept away by the second wave of COVID-19. The chief adviser to the government on science is confident that it is necessary to urgently introduce restrictive measures, otherwise, in October, there will be 50,000 new virus cases per day. But the worst thing is that the daily death number will reach 200 or more people. Indeed, the situation is critical for the pound sterling, taking into account the sad experience of the British economy lockdown.

The chart below shows the dynamic of new confirmed COVID-19 cases in the UK (x1,000 per day).

Restrictive measures have already been introduced in some UK regions. However, investors are wary of more aggressive government measures to tackle the infection, as the burden on the healthcare system advances every day. This raises doubts about the early recovery of the country's economy.

Moreover, due to the pandemic, flights between the United States and the United Kingdom were stopped. According to some data, the damage to British GDP from the flight interruptions between the countries in 2020 will amount to 11 billion pounds ($14.21 billion).

Experts urge the authorities to reintroduce transportation between the UK and the US. Besides, to control the virus spread, it is necessary to implement COVID-19 testing at airports. Otherwise, the UK economy may lose 32 million pounds per day.

The testing regime would reduce quarantine and open regional transport corridors in the UK and US markets. And this will have a positive effect on the UK economy, as the head of British Airways Alex Cruz said.

Airlines are eagerly awaiting the lifting of the restrictions on transatlantic flights. The New York-London route brings a lot of income to British Airways. Last year, 7 million tickets were sold in this direction. According to the report, about 4 million Americans visit the UK every year.

It is unknown when the restrictions will be lifted. In addition, the United States has banned entry to persons who are not British citizens and have visited Europe in the previous two weeks. The British authorities, in turn, introduced a 14-day quarantine for arrivals from the United States.

In addition, the Brexit uncertainty weighs on the pound.

Negotiations between the UK and the EU are difficult, an agreement has not been reached yet. Therefore, Prime Minister Boris Johnson decided to go ahead. His government is trying to put forward a legislative proposal that would allow the UK to abandon a number of points of the agreement that the country signed with the EU in January. In this case, Mr. Johnson violates international law. It looks like he wants a tough "divorce" from the EU. However, not everyone supports the Prime Minister's decision. Five former prime ministers, including Theresa May, and other prominent figures in the Conservative Party, opposed such a move, accusing Johnson of damaging the country's reputation.

Johnson's legislative proposal would allow British ministers to unilaterally decide which goods entering Northern Ireland would be subject to duties. Besides, they will receive an opportunity to repeal EU state aid rules contained in the Northern Ireland Protocol and waive customs clearance for trade transactions between Northern Ireland and Britain.

Brussels, in turn, fears an uncontrolled flow of goods across the border and a decrease in competition due to British subsidies to their companies. Experts are confident that if Johnson pushes this proposal through both Houses, the EU can respond by imposing sanctions, including financial ones, as well as suing the UK in the European courts. The UK must submit to this court for another 4 years, as stated in an earlier agreement. Accordingly, the refusal to recognize them would mean another case of the international law violation by Great Britain.