Sterling drops as spreading coronavirus sends investors into dollars

Sterling fell on Monday as rising fears about the economic impact from the spreading coronavirus encouraged investors to seek safety in the U.S. dollar. The British pound dropped along with most currencies as investors scrambled out of assets deemed riskier for the dollar. Most analysts see the U.S. economy as relatively well shielded should the coronavirus hurt global growth significantly.

By 0940 GMT, the pound was 0.4% lower at $1.2904, reversing most of Friday's gains. It fell 0.2% versus the euro to 83.88 pence.

The pound has been supported in recent weeks by better-than-expected economic data and growing expectations that the new UK finance minister will announce more spending at next month's budget. But those gains have been capped because of broad dollar strength and ongoing worries about Britain's trade negotiations with the European Union.

"A quiet week in terms of data releases is going to leave space to the other two key drivers of GBP: UK-EU trade negotiations and hints about the content of the upcoming UK budget," ING analysts said in a research note. "We suspect both will hardly come to the support of the pound, as the negotiations may enter an even more confrontational phase and the government is unlikely to endorse the market's high fiscal hopes."

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