Yesterday saw the British central bank, the Bank of England (BoE) announce that it had opted to cut the UK’s interest rate to 0.1%. The decision was justified by the bank in an action to combat the damage caused by the coronavirus outbreak. The UK central bank’s governor Andrew Bailey noted that there was not one single factor in making the decision to cut the rate for the BoE but a combination of recent events and downward pressures on the pound sterling. Recently, the BoE governor noted that he was watching the currency closely after sterling’s recent poor performance against most major rivals. Meanwhile, for the Eurozone’s ECB, they announced plans to inject Europe with stimulus earlier in the week, but the market has noted that investors have been left underwhelmed by the response and have witnessed a surge in the GBP/EUR exchange rate pairing despite the mammoth pledge from the European Central Bank.
Bank of England Announced Emergency Interest Rate Cut, Dropping Rate Down to 0.1%
GBP soared following the BoE’s shock decision to cut the cash rate from 0.25% to 0.10%, a fresh historic low, and to add an additional £200 billion to its quantitative easing (QE) program. The decision is part of a broader effort to support the economy through the unprecedented coronavirus crisis that’s seen schools closed, public events cancelled, and which could yet see UK citizens subjected to the ‘lockdowns’ witnessed in France, Spain, Italy and other countries across the world.
The Bank of England justified its decision and highlighted that the containment of the COVID-19 virus “will result in an economic shock that could be sharp and large,” necessitating further support for an economy that was this week subjected to a perilous tightening of ‘financial conditions’ due to a rout in the typically safe-haven government bond market.
ECB’s ‘Mammoth’ Stimulus Injection Fails to Impress Investors as GBP/EUR Rate Soars
The market noticed a spike in the GBP/EUR exchange rate yesterday following the BoE’s shock announcement but considering the recent stimulus package announced by the ECB, many had predicted EUR to fare better. The ECB’s ‘Pandemic Emergency Purchase Programme’ was announced earlier in the week to combat the damage caused by the global pandemic, the plan pledged to pump in €750bn to help support the Eurozone’s economy during the volatile times. However, with Europe’s emergency lockdown procedure now affecting three out of the four major economies in the bloc, EUR investors are remaining cautious about the single currency’s outlook as a recession in the near-term is looking more and more likely.
If you have an upcoming currency transfer and would like to leanrn more about factors influencing sterling/euro rates, you can contact me directly, James Lovick, I’ll be happy to respond personally and discuss your enquiry.