A lengthy lockdown?

Good morning,

Although the pound remains well supported against most major currencies, especially the US dollar, yesterday’s announcements in the House of Commons that the most recent lockdown that the UK finds itself in should run until March – in the legislative sense. The revelation caused the chairman of the 1922 committee, Sir Graham Brady, to request that the Government look again at the proposal, as it simply would be too much to stomach for Tory backbenchers and the nation at large. Although the Prime Minister did reiterate that March was when the legislation for lockdown expired and that reviews would occur, the announcement was felt across pound pairs as markets worry over the potential deeper impacts to the economy.

The next potential hurdle for the pound will be The Bank of England’s navigation of the impending economic impacts of the third lockdown and if they justify a reduction in the interest rate. Although the Monetary Policy Committee has stood against negative interest rate cuts, with going to a flat 0% still an option, the general rule of thumb for markets is – cut that rate and the currency suffers. If the UK is heading for negative interest rate territory however in this quarter, things could get considerably trickier for GBP’s 2021 post-Brexit recovery.

Have a good day.

Joshua Haden-Jones, Senior Relationship Manager.

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