New BoE Governor Expected to Slash Interest Rate to Record Low
The pound to US dollar rate began the week under the 1.24 benchmark, which represented a slight recovery from Friday’s five-month low. Gains were limited, however, by mounting speculation that the Bank of England (BoE) could cut interest rates even further following last week’s emergency action. New governor Andrew Bailey – who took over from Mark Carney at the central bank yesterday – is walking into an economic crisis. One of his first jobs could be to slash the cost of borrowing to a record low, to combat the impact of the coronavirus.
Pressure built on Boris Johnson over the weekend to implement tougher measures in line with other countries. By yesterday afternoon, the pair had sunk to a six-month low, as the UK government provided further draconian advice to control the spread of the outbreak, such as avoiding pubs, working from home and abandoning travel plans.
Federal Reserve Slashes Interest Rates to Near Zero
The dollar’s strong run skidded to a halt over the weekend, after the Federal Reserve attempted to prop up the economy by actioning another surprise interest rate cut. The Fed’s dramatic move saw policymakers cut its benchmark interest rate to near zero, as part of a coordinated effort with other central banks to prevent a potential global economic crisis due to coronavirus. The swifter-than-expected rate cut was actioned at an emergency meeting that replaced the scheduled gathering of Federal Open Market Committee members on Wednesday.
While the dollar didn’t take too kindly to the news; the GBP vs USD rate only edged slightly higher on Monday morning due to escalating coronavirus concerns in the UK.
Looking ahead
According to experts, new BoE governor, Mr Bailey might ask monetary policymakers to vote on a cut in interest rates to 0.01%, to make lending the cheapest it has ever been; a move that would put further pressure on the pound v dollar rate. Economists believe predictions of a recession will precipitate another rate cut this month, as the economy is hit by office and store closures, postponed events, cancelled flights and self-isolation.
The UK unemployment rate is expected to remain unchanged at 3.8% today. The pound will be hoping for a boost from the jobs market, with the claimant count and average earnings figures also due for release.
Today’s US industrial production and retail sales figures will act as a barometer of the economic impact of the coronavirus.
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