The British pound gains thanks to the Bank of England.
On Monday, a member of the Monetary Policy Council (MPC) of the Bank of England, said that additional monetary support may be necessary and that negative interest rates could strengthen economic growth.
For now, however, the market is adjusting. On Monday, the market discounted the 10bp cut until the August meeting. Today these chances have decreased by a fifth. The rebound of the pound may be fueled by a halt in the dollar correction and a return in demand for G10 currencies vs USD.
Despite this, the future of the British economy in times of the pandemic and crisis, is not a factor to be ignored and weak data from the economy will give rise to speculation about easing monetary policy, by introducing negative interest rates. This is where the selling pressure of the pound should be seen.
The British pound continues yesterday’s strengthening with GBP / USD above 1.3680, while GBP / PLN is testing 5.08. The impulse to buy the pound was clear by the comments of the Governor of the Bank of England, suggesting reluctance to negative interest rates.
Yesterday BoE CEO Bailey, said that negative interest rates are a controversial topic and there are many problems with them. At the same time, Bailey highlighted concerns about the economy, which is under severe restrictions and the end of it is currently difficult to determine. The BoE will have to take this into account in its forecasts in February. Hence, the idea of lowering the interest rate below zero is not entirely ruled out. If the British people’s propensity to spend declines and Brexit slows down business growth, the Bank of England will be forced to act.