British Pound Up as Rate Cut Hopes Fade
The British pound strengthened further against the US dollar and the euro on Thursday. As the fx market finds support from the fading possibility that the Bank of England (BoE) will reduce interest rates. This followed the Federal Reserve’s emergency rate cut to cushion the impact of the coronavirus.
The sterling gained 0.33% to 1.2912 versus the greenback, putting more distance on the 4-1/2 month lows posted on Friday. The euro shed 0.01% to 0.8648 against the pound.
The British currency’s rise came after it saw its best session in two weeks against the euro on Wednesday. It climbed 0.6% after an anticipated rate reduction from the BoE did not take place.
That helped recover more than 5% losses it registered versus the single currency during the past couple of weeks.
Still, the British pound stood near a 4-1/2 month lows against the euro, as uncertainty over trade negotiations between the UK and the European Union (EU) remained in the spotlight.
British Pound Recovers as Bailey Dampens Potential Emergency Rate Cut
Forex trading in the British pound was hit by rate-cut expectations in recent days. Although it regained some stability after incoming BoE Governor Andrew Bailey weakened such outlook on Wednesday.
The BoE should wait until it has more clarity about the economic hit from the coronavirus outbreak before making any decision to cut interest rate, Bailey stated.
Money markets in the UK priced in a 25 basis points rate reduction at the central bank’s meeting this month. Nearly 50 basis points of reductions are now priced in by the end of 2020. In comparison with zero a few weeks earlier before the virus outbreak.
Forex market players believed that the central bank would follow the lead of the Fed’s and the Bank of Canada’s (BoC) move to cut rates, possibly before the BoE’s first policy announcement under Bailey on March 26.
The stronger pound reflects in part some short-term relief that the BoE has not yet quickly followed the Fed and delivered an inter-meeting rate cut, according to analysts of a Japanese bank holding and financial services firm.
Bailey’s comments signal that the BoE is not yet at the point to pull the trigger on further easing, the analysts stated. Although they still expect sufficient evidence to be in place to take policy action at their next policy meeting.
Forex investors will be on the lookout for more signs on the central bank’s thoughts on interest rates. BoE chief economist Andy Haldane is set to speak at an event in Paris later. While current governor Mark Carney will also make a speech in London later in the day.
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