Yesterday saw the GBP lose favour with the market and allow the euro to edge up against it after it was reported that Bank of England (BoE) governor Mark Carney mentioned that an interest rate cut may still be an option for the UK economy. The dovish tone worried investors who believed that Decembers election results and recent optimism surrounding the UK business growth for 2020 seemed set to boost the GBP rather than see it propose possible quantitative easing (QE) methods. However, earlier this morning the sterling managed to recover some of its losses as some note that the governor’s intervention will have little long-lasting effect on the currency.
Earlier Than Expected Rate Cut Talks Knocked GBP but BoE Points to Signs of Improvement
Bank of England Governor Mark Carney’s statements came as a surprise to the market. His intervention in this manner so soon after the December General Election was earlier than expected, but he gave hints which suggested the Conservative majority appears to have unlocked a certain level of confidence amongst UK businesses. This is positive news for the GBP and allowed it to claw back some of the losses from yesterdays shock statements. This means for the euro, that it has dropped, and the pound to euro exchange rate has strengthened on the upside. Investors selling EUR to GBP had an increased opportunity yesterday to trade upon the release of the BoE’s statements, but it appears that the GBP is back on top in the pairing for the time being.
Strategists Suggest Little Has Changed With the Comments and the GBP Will Turn to Data and Brexit Releases
Viraj Patel, FX & Global Macro Strategist at Arkera suggests that nothing has changed in the wake of Carney’s comments. Also suggesting that the UK’s primary focus moving forward will be on the Brexit advancements and any important UK data releases. He also noted that the bar is high for a BoE rate cut, considering the limited policy space. Should the GBP receive a cash cut, the euro could be set to advance as it begins its recovery period concerning its own Eurozone economy. Reports of a slower decline than expected in German economic data has hinted that the German economy may be showing signs of a turn-around. Investors in the euro will be hoping that this is the case being the largest economy in the Eurozone.
For those euro investors keeping an eye on the EUR/GBP exchange rates, attention will turn to any further comments from the BoE regarding monetary policies, as well as any unfolding’s in the Brexit negotiations, as the Eurozone looks to secure a deal fit for the EU with Britain’s departure looming.
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