The Bank of England has now become the third central bank to take emergency measures to combat the economic impact that Covid-19 is currently having across global markets. Borrowing rates now sit at 0.25%, having come down from 0.75% representing a 50bps cut. Rewind to the beginning of the year and we were expecting borrowing rates to finish at 200bps in December 2020.
The vote was unanimous across the board and is well-timed ahead of the UK budget release today where we expect to see an increase in public sector borrowing and an extended effort to calm the concerns of the general public.
GBP currency pairs initially weakened as the news broke, but we’re seeing some stabilisation now take place as the European trading session gets underway. If you compare trading conditions following the rate cut in the US, this temporary measure can quickly get lost in more fear selling if global cases of infection and mortality continue to rise. This is by no means a robust fix for the economy but should alleviate some of the fears small businesses have about trading conditions in a quarantine environment. The ripple effect impacts everyone in the chain with sporting companies like Adidas investing hundreds of millions into now delayed or cancelled sporting events like football matches and marathons, right down to small businesses providing consulting services involving travel or event management.
We don’t often say this but, currently, the economic calendar has taken a back seat and to a certain extent is now irrelevant. Things like retail and investment sentiment remain sour and global manufacturing and industrial output is expected to remain under pressure, so there shouldn’t be any data surprises. The focus will be on the remaining central banks and what action they take. This highlights the problems with continued record-low borrowing rates. Take the EU for example, where can they can go from here? Christine Langarde warned the current situation is quickly evolving into 2008 financial crisis levels of concern and it will be interesting to see what they deliver.
We are seeing an increase in FX turnover as well as an increase in client’s who are taking out forward contracts to manage their quarterly flow and risk. As interest rates change, so does the cost of your forward purchases, so please don’t sit back without a plan, instead, contact the account management team on 0207 801 9080.
Have a good day.
Author: Alistair Hutson, Private Relationship Manager
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