The British pound has been weak even before the US stock market and US dollar took off because of an outbreak of Foot and Mouth disease in the UK this weekend.
The last time this epidemic hit the country was back in 2001 when the economic impact was close to GBP10 billion. At that time, not only was the British meat shut out of the international markets, but tourism was also seriously affected. Between the spring and summer of 2001, the British pound fell from 1.4750 to 1.3680, which is over 1000 pips. Although the UK government is doing all that they can to contain the outbreak, the US, Japan and EU have already banned imports of live animals, fresh meat and milk from the UK. To some degree, this must have a negative impact on the UK economy and that inevitability is being reflected in the British pound today. Even though the Bank of England will be delivering their Quarterly Inflation report on Wednesday, the FMD breakout could curtail any further pound strength.