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Yesterday, we had the anticipated Bank of England interest rate update and minutes. There weren’t any surprises but there was some homework for the market to review ahead of next month’s meeting, particularly in relation to this cat and mouse game of negative interest rates.
Andrew Bailey has not dismissed the idea of sub-zero borrowing rates, but hinted that a necessary decision was not imminent and would rely on observations from other countries. The overall economic damage has not been as severe as first forecasted in May, but that should not be mistaken for blind optimism that things are getting back on track. A list of large company loans made available during the COVID-19 pandemic is now available online and the sheer scale of it is somewhat daunting.
The Bank of England team has forecasted a 20% fall in combined Q1 and Q2 GDP vs the original forecast of 27%. Coupling this with the gradual “slowing” of QE in-line with the steady improvement in economic sentiment, and yesterday’s meeting could be heralded somewhat hawkish. The Pound reacted positively, for a short while, with GBPEUR and GBPUSD jumping higher. However, the market still feels that the Pound is at a unique disadvantage with severe COVID-19 economic worries, pending negative rates, and Brexit creating a constant triple threat. As a result, both GBPEUR and GBPUSD have headed to fresh weekly lows, with the dollar battling 1.24 and GBPEUR at 1.1060.
Keep an eye on breaking headlines from the EU summit which is taking place today. A final decision still awaits the recovery fund and, according to German officials, the real negotiations have yet to get underway. They expect more traction next week.
For clients who are buying Euros, whether it relates to property or manufacturer and supplier payments, this is a big red-flag for GBPEUR. Positive progress on the recovery fund is likely to drive additional Euro strength and will add increasing pressure to GBPEUR which has lost close to 5 cents since May.
There’s no right or wrong way to manage your currency exposure, but having a plan is important, regardless of how simple it may appear. Speak to your account manager for more information about forward buying and limit orders.
Have a great weekend.
Author: Alistair Hutson, Senior Relationship Manager
Whilst every effort is made to ensure the information published here is accurate, you should confirm the latest exchange rates with WorldFirst prior to making a decision. The information published is general in nature only and does not consider your personal objectives, financial situation or particular needs. Full disclaimer available here.