In the middle of the trading day yesterday, the Bank of England once again slashed interest rates – down to their lowest ever at 0.10%. The second out-of-session cut helped stimulate a shortlived, but sharp, two cent rally on the Euro and Dollar, as some investors took a punt on the Pound, which even at 0.10% has managed to stay positive for now. Disappointingly, after the London session closed and the Asian session took control, huge selling once again pushed Sterling down to the historic lows it had seen on Wednesday, before rebounding again this morning.
From a technical standpoint, it seems 1.1400 on the Dollar is a buying zone for market makers looking to take a punt on an extremely undervalued Sterling, with 1.0600 being the rebound area on the Euro. Obviously, these are not concrete and there is nothing stopping the pound from turning back and crashing past these initial watermarks. The rally is also being kept going by the UK Government’s determination not to lock down the capital, or country, keeping businesses trading and supported financially in the face of the spreading virus.
The slow in the slide in global stock markets, particularly the US Dow Jones index, has also offered some support to the Pound, as the flight to the Dollar as a haven currency has started to ease up. Make no mistake – this is certainly the most volatile week for Sterling in living memory, with falls more severe than the 2016 referendum and 2008 recession. The coronavirus outbreak is very much a day at a time problem for Britain and by extension, the Pound.
Author: Joshua Haden-Jones, Senior Relationship Manager
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