LONDON: Sterling fell against the dollar and euro on Monday as more countries cut transport ties with Britain, where a fast-spreading new strain of the coronavirus had broken out. Spain, Hong Kong and India joined a growing list of nations, including France, Germany, Ireland and Canada, that have suspended travel for Britons to ward off the new strain.
The travel chaos comes just as Britain was bracing for disruption if UK-EU trade talks collapse without a deal, with negotiations continuing just days before a transition period expires at the end of the year. Sterling touched 10-day lows against the dollar and euro, reversing recent gains, although it pared some of its losses by afternoon trading in London.
The pound tumbled as much as 2.5% versus the dollar, below $1.32. It was last down 1.6% at just above $1.33. Against the euro, the pound fell more than 1%, to a day's low of 92.16 pence. It was last trading at 91.70 pence.
Sterling-dollar overnight implied volatility surged to its highest since March, suggesting traders are expecting further swings in the coming days. Prime Minister Boris Johnson said on Saturday that the new variant of coronavirus had led to a spike in infection numbers. The government has tightened its lockdown for London and nearby areas, and reversed plans to ease restrictions over the Christmas period.
"The new, tougher (COVID-19) restrictions will likely have to remain in place until there has been greater vaccine roll-out which could take months," analysts at MUFG said in a note.
"At the current juncture, we are working on the assumption that vaccines will still prove effective against the new strain but it is not yet clear. As a result, the economic slowdown will prove deeper and extend further into next year."
Britain will end its transition period with the EU as planned, a spokesman for Johnson said on Monday, after Scotland's first minister called for it to be extended due to the complications of the new virus strain.
"I still believe there will be a deal. As long as there is a day to negotiate they will use that day to negotiate," said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.
"At the last minute they can step over symbolic issues as they have said at various stages they are close to agreement."
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