BoE Statement Propels Pound Sterling, USD Eases As Stocks Recover

BoE Statement Propels Pound Sterling, USD Eases As Stocks Recover

The sterling is broadly higher today after the Bank of England Deputy Governor said negative interest rates were not inevitable. The rebound of the pound is somewhat strengthening other large European companies. The Australian dollar is currently the second strongest on a rebound in stocks. The US dollar is trading lower overall, having lost gains last week, while the Canadian dollar comes second.

The market started the week with improved sentiment to the detriment of the dollar. However, the intraday decline of the dollar against major competitors seems at the moment a simple correction without any changes in the long term.

From a technical point of view, the break of the EUR/GBP minor support at 0.9067 is positive for the pound sterling. However, we would have preferred to see a break of the 1.3007 resistance for the GBP/USD and the 136.46 resistance for the GBP/JPY to confirm the underlying strength. In the end, the pound still faces the risk of returning to isolation from coronavirus and no-deal Brexit.
BoE Foresee Effective Lower Range in Interest Rates
Sterling is encouraged by a comment by Bank of England Deputy Governor Dave Ramsden in an interview with the Society of Professional Economists. He said: “I believe the effective lower bound is still at 0.1, where the bank’s interest rate is now.” Negative rates are “in the toolbox,” and the Bank of England is “obliged” to study operational considerations in more detail. Interaction with banks at a negative rate “will take time”.

On the economic front, he said that in major cases, GDP is “steadily recovering”, but there is “real uncertainty and risks” due to the pandemic, Brexit, and the US elections. The Bank of England is “ready to act when needed.” He is also concerned that the unemployment rate could rise further than in the case of the Bank of England. “For me, when we look at unemployment, it is more likely that unemployment will eventually peak above 7.5% rather than lower and eventually decline more gradually,” he said.

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Author : Azeez Mustapha

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Azeez Mustapha is an experienced author, trader, markets analyst, signals strategist, and funds-manager.