October 21, 2020

Negative rate comments by BoE roil markets

LQDFX Forex news Blog | Negative rate comments by BoE roil markets

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The Bank of England said that it had been briefed on how negative rate could be implemented effectively, should it be needed.

Sterling was steady near $1.298 before the statement and fell to as low as $1.2883, losing around 0.6%. It also fell versus the euro, down around 0.5% on the day at 91.505 pence per euro at 1113 GMT.

British government bond yields also nudged lower after the BoE comments. Yields on two-year gilts were last down 2.5 basis points on the day at -0.08%.

The Bank of England kept its main stimulus programmes on hold and said that Britain’s economy had performed better than expected. The BoE said it was ready to take further action, highlighting risks relating to rising COVID-19 cases and Brexit.

The BoE said that their base case is an “immediate, orderly move to a comprehensive free trade agreement with the EU on 1 January 2021”.

US Data continued to show high levels of weekly jobless claims. Labour market recovery halt added to concerns about an economic rebound a day after the Federal Reserve issued an underwhelming stimulus plan.

The Fed focused on keeping U.S. interest rates at current record lows until employment and inflation reach its targets. At its policy meeting, the Fed pledged to keep rates near zero until at least the end of 2023. By then, the US central bank hopes that the labour market would have reach “maximum employment”. Further, inflation will be on track to “moderately exceed” the 2% target.

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Forex – Negative rate comments by BoE roil markets

The dollar’s weakness helped stem some of the selling pressure on other currencies such as the euro and the Australian dollar. Money markets ramped up their expectations of British interest rates entering negative territory.

The US dollar posted its biggest daily rise in more than a week as dealers unwound short positions taken ahead of the Fed decision. The dollar index rose about 0.32% to trade at 93.493. The greenback fell to more than two-year lows below 92 earlier this month. The dollar stands near its lowest level in 16 months after falling more than 9% from its March peak.

Among Asian currencies, the Australian dollar was the hardest hit, falling 0.4% to $0.72770 despite strong jobs data.

The safe-haven Japanese yen changed hands at 104.76 against the greenback, a 2-1/2-month high.

The euro briefly hit a one-month low in Asian trading at $1.1737 before trimming some losses to stand 0.2% lower.

The pound fell around 0.6%, or around one cent, against the dollar and euro. The Bank of England said it had been briefed on how a negative interest rate could be implemented effectively, should it be needed. At 1142 GMT it was at $1.2890, down 0.6% on the day, while euro-sterling was up 0.5% at 0.9158.

PLEASE NOTE The information above is not investment advice.

Sources: Reuters, Investing, CNN money