The Bank of England has left its interest rate unchanged at 0.1 per cent and maintained its quantitative easing programme at £645 billion at this morning’s scheduled monetary policy meeting. The pound is currently 0.25 per cent up on the day against the euro and US dollar, with the pound to euro rate trading at 1.1450 and GBPUSD at 1.2360.
Two members of the bank’s Monetary Policy Committee, Jonathan Haskel and Michael Saunders, voted to expand the current £645 billion quantitative easing programme and Governor Andrew Bailey appears to have moved away from the “V-shaped” recovery. Baily said the BoE is ready to do more and that the BoE sees the UK economy contracting by 14 per cent this year. The Governor said there would be long-term damage to the economy and the lockdown effect may last for a year. Whilst there was no immediate action today, the BoE painted a very gloomy picture of the economy and what may lie ahead.
Prime Minister’s Exit Plan on Sunday likely to Impact Pound to Euro Next Week
Public Health England has told local councils to drop the “Stay Home” message form this weekend. The slogan will be removed from websites and other media outlets as the UK enters a new phase. It is not yet clear what the new message will be but the Australian strategist Isaac Levido, who successfully helped the Conservatives to a landslide election win in December, has been working on it.
Public Health England has also confirmed both Coronavirus cases and hospital patients are continuing to fall, an encouraging sign for the government. The UK has now tested almost 1.5 million people for Coronavirus with 200,000 testing positive
Prime minister Boris Johnson is expected to set out his plan on how the UK will move forward from lockdown on Sunday with the next phase expected to start shortly. One of the key difficulties is how to make public transport safer and what could be done to make walking and cycling easier. The government is also keen to support businesses so that they can adapt and evolve with the measures.
The prime minister will also be boosted by the fact that 80 per cent of people questioned by Isle of Wight Radio show have said that they would download the new contacting trace app, which allows the government to monitor the spread of Coronavirus.
GBPUSD to remain under pressure as risk-off
The pound struggled during yesterday’s trading as it lost more than 0.6 per cent against the US dollar. There were market jitters after the US saw its largest one month fall in payrolls on record and US-China tension increased as US Secretary of State Mike Pompeo once again stated that there was significant evidence that Coronavirus escaped from the Wuhan research lab.
Australia has also accused China of a cover up, calling for an inquiry, much to the displeasure of China has threatened Australia with economic consequences, due to the close trading relationship that they share.
Brexit talks continue to disappoint
The UK and EU are currently locked in Brexit trade negotiations with little sign of a breakthrough. Michel Barnier’s frustrations were clear to see less than two weeks ago, when he criticised the UK for their unwillingness to compromise or to extend the transition period. This is the second round of televised talks, which investors expect to be as unsuccessful as the last round, which would likely heap more pressure on the UK currency as the prospect of trading on World Trade Organisation rules increases.
GBPEUR has been trading sideways in recent times with the currency pair approximately 1 per cent higher than this time last month. Whilst the pound has seen its woes, the euro has been no stranger to its own problems, with Eurozone leaders unable to agree a bailout package for its states. Infighting between the countries in the south such as Italy and Spain and supported by France have long been calling for Coronabonds, a form of collective borrowing that would support all nations. However, richer countries in the north, led by Germany are flatly against any form of support that involves debt mutualisation.
ECB president, Christine Lagarde is desperate to bring the nation states together and launch her very own bazooka rescue deal, but this seems far away from reality. Instead, a €750 billion Pandemic Emergency Purchase Programme has been confirmed but this does not go anywhere near close to providing the necessary support. Lagarde has forecast a 9 per cent drop in Eurozone GDP this year but that could easily become 15 per cent.
Furthermore, the German supreme court has said that the ECB’s bond buying partially contravenes law. The case has been ongoing for some time and covers the period 2015-2018, when the ECB purchased €2.6 trillion, with the intention of boosting the economy. The decision by the top German court has infuriated the ECB at a time when relations are already strained.
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