The pound was set for its worst day since the Brexit referendum on Wednesday, as the coronavirus pandemic continued to dent the currency’s status as a safe-haven asset.
The currency, which had been buoyed by Brexit certainty in recent months, fell by around 4% to around $1.15 (GBPUSD=X).
The pound has fallen by more than 11% since the beginning of last week, when it briefly touched the $1.31 mark.
The currency had also fallen by around 2.5% against the euro (GBPEUR=X), to €1.06, on Wednesday evening.
As markets assess the wide-ranging economic impacts of the deepening coronavirus pandemic, traders have been switching from sterling to other major currencies.
“This is the worst sustained period of sterling selling that I can recall, and it points to a severe dollar liquidity crunch that central banks have yet to get a grip on,” said Neil Wilson, the chief markets analyst at Markets.com.
The US Federal Reserve on Sunday relaxed the terms on which it provides currency swaps to five of the world’s major global central banks, making it easier for them to provide dollar funding to financial institutions.
The 2008 financial crisis gave the dollar the status as the only true global reserve currency, and it still serves as the means of exchange for around half of foreign trade.
Demand for dollar funding surged to its highest level in years last week, as borrowers around the world signalled that they were willing to pay a premium to access the currency on derivative markets.
“There is a synchronised rush for dollars that has caught most companies, governments and traders on the hop. Dollar funding issues have been far more serious than estimated prior to this crisis,” said Wilson.
Compared to a basket of global currencies, the dollar on Wednesday surged to its highest level in three years.
The pound has also struggled in comparison to the euro and other safe-haven currencies, such as the Swiss franc and Japanese yen.
But it has been dented far less than other riskier currencies such as the Russian rouble, Mexican peso, and Norwegian crown, which have been dumped by investors seeking refuge from the fallout of the pandemic.
The Norwegian crown hit a record low against the dollar on Wednesday.
The slump for the pound came even after UK chancellor Rishi Runak on Tuesday announced £330bn ($390bn) in state-backed loans to coronavirus-hit businesses and a further £20bn in stimulus measures.
The decline in the currency’s value raises questions about how the UK government will fund the stimulus measures, which will almost certainly require borrowing on the international markets.
The UK is now “relying on the kindness of strangers,” according to Nomura research analysts Jordan Rochester and David Wagner.
“It’s a big gap to fill as government borrowing is likely to rise in a fashion similar to that of the 2008 bailouts in the UK and with it demand a wider current account deficit and reliance on market funding.”