How could Pound Sterling (GBP) or other currency exchange rates be impacted by the most recent bird flu outbreak? The prospect of an outbreak of a disease or deadly virus can cause massive exchange rate fluctuations.
New Zealand Dollar (NZD) and Australian Dollar (AUD) Fall on Risk Aversion
For instance, at the outset of the ongoing Ebola crisis, higher risk currencies such as the Australian Dollar (AUD) and New Zealand Dollar (NZD) fell against safe-haven assets such as the Swiss Franc (CHF), Japanese Yen (JPY) and US Dollar (USD). Furthermore, when the Ebola virus reached US shores, the initial market reaction caused a sell-off in the US Dollar and gains in commodities such as gold.
Now bird flu has been confirmed in the UK the Pound (GBP) could feel the effects. The European Commission is now discussing measures to contain the virus in the UK as it is highly contagious. However, if bird flu continues to spread it could cause panic. So far cases in the UK, Germany and the Netherlands have all been confirmed.
One problem with the bird flu outbreak is the fact that the disease is zoonotic—meaning that the virus can be passed from animal to human. The Dutch government stated: ‘This highly pathogenic variant of avian influenza is very dangerous for bird life. The disease can be transmitted from animals to humans.’
Previous Cases of H1N1 in the World
So, what has history taught us? In 2009 there was a flu pandemic—an issue that caused worldwide panic. The H1N1 virus can present itself in pigs (swine influenza) and birds (avian influenza); however, 2009 saw three strains of the virus combine, swine, avian and human which led to the term ‘swine flu’.
The initial disease began in Mexico, where the virus had supposedly harboured for months without being recognised as such. When the virus was recognised the Mexican government closed Mexico City’s public and private facilities in an attempt to restrict the virus from spreading further. However, authorities weren’t that lucky and the virus continued to spread on a much larger global scale.
The World Health Organisation (WHO) recorded that in the time period between April 2009 and July 2010, the virus claimed the lives of over 18,000 people. However, the WHO states that the actual death count is ‘unquestionably higher’.
The Spread and Contagion of Bird Flu
So how is it spread? In this instance, bird flu is expected to have come into the country as wild migrant birds passed it on to UK poultry. The European Commission commented: ‘A species of wild swans might be carrying the virus without showing signs of disease.’ The cases of bird flu found in Germany and Holland have been diagnosed as the H5N8 strain, which is an extremely contagious form of the illness for birds. However, H5N8 has never been found in humans, unlike H5N1 which has been responsible for the deaths of 400 people since 2003.
Humans can catch the virus from being in close contact with birds that are infected. Human infection is a little harder, with some claiming it’s not possible and others suggesting that only people in extremely close proximity to the affected can contract the virus. However, it has been shown that approximately 60% of those diagnosed with bird flu lose their lives to it. The symptoms include sore throats, fevers, coughing and conjunctivitis. Meanwhile, some birds also show a swelling around the eyes and ears.
New Strain of Human Flu Virus could Cause 50,000 UK Deaths
Worryingly though, it appears as if a new strain of human flu virus could occur. Government medical advisor Sir Liam Donaldson commented: ‘Why is that inevitable? Well, because it’s happened before. These things come in natural cycles, every 10 to 40 years the flu virus mutates into a strain we haven’t got natural immunity to.’
The WHO has also suggested that the bird flu infection could be more serious than Sars. The institution went on to say that at its worst up to 50,000 UK citizens could die if the virus developed into a form that allowed a human-to-human spread. Disease expert Professor Neil Ferguson commented: ‘What can we do if it hits our shores? We couldn’t stop it. There would be a constant number of new cases and we would be overwhelmed very rapidly.’
So, what are authorities doing to take action against bird flu? Bird keepers all over the UK are being asked to keep watch of their birds for any signs of infection. They are also introducing measures for containment if signs occur. Any site that is found to have infected birds will be quarantined for two miles.
How can Bird Flu alter the Pound (GBP) and other Exchange Rates?
So, what does bird flu mean for currency and foreign exchange rates? As discussed in previous articles, one thing that moves the markets quite significantly is fear. Any case of a pandemic or fear of serious illness can cause risk aversion tactics from investors who seek safe-haven assets or commodities. As the fear of a disease heightens, investors want to place their money in the safest places to minimise potential losses. If the UK were to have a serious bird flu problem the Pound Sterling (GBP) exchange rate could weaken quite significantly.
When the Ebola outbreak occurred, some West African countries saw their currency’s flop. Moreover, the price of food has increased and import costs and a weaker currency has caused economic problems. Since the bird flu outbreak, Ukraine has restricted imports of live birds and bird products from the UK, Netherlands and Germany. In addition, we are fast approaching the Christmas period which sees 10 million birds end up on the dinner table in the UK. If bird flu spread in the UK, poultry farmers could see massive losses of stock and finances, a factor that could affect the UK economic recovery quite significantly.
The Economic Effect of Bird Flu on Businesses and the UK Recovery
Just prior to the global financial crisis in 2007, bird farmer Bernard Matthews was affected by avian influenza (H5N1) which resulted in an extremely large cull of turkeys. Over 160,000 turkeys were killed in an effort to contain the viral spread and 320 farmers had to be medicated. Sales of Bernard Matthews’ products more than halved as sentiment fell dramatically. Furthermore, one of the largest consumer confidence surveys revealed that Bernard Matthews had become the least respected and trusted brand within the UK.
The domino effect continued when the company was forced to lay off 130 workers as a result of fewer retail sales. The government came under fire when it was found to have paid nearly £590,000 to Bernard Matthews as compensation for the loss of its turkeys while workers who had been laid off were granted nothing. As an overall figure, the whole Bernard Matthews situation cost the company in excess of £20m in costs and as a result of fewer sales.
Safe-Haven Assets (JPY, CHF, USD, Gold) Sought in times of Crisis
Since the latest outbreak of bird flu began, two people have died in Egypt, taking the number of deaths to three in the country this year. If the virus became widespread in the UK, the Pound (GBP) exchange rate could sink against other currency majors such as the Swiss Franc (CHF), Japanese Yen (JPY) and US Dollar (USD). Meanwhile, if the virus mutated into a form that could be easily transferred from person-to-person and spread globally, currencies all over the world could suffer and that could affect imports, exports and businesses the world over. Farmers could lose businesses and economic recoveries could be severely hindered by reduced supermarkets sales.
