IFX Market Report: Monday 2nd November 2020

As the UK braces itself for another national lockdown, the Pound has lost ground against its peers, trading at 1.10 against the Euro and at 1.28 against the U.S. Dollar. In response to the crumbling UK economy, it has been reported that the Bank of England are considering implementing zero or negative interest rates.

On Friday markets saw limited price action for cable. The pair opened the day at 1.2925 and closed above that mark at 1.2953.

It was a similar story with EURUSD, the pair traded flat over the course of the day – opening at 1.1669 and closing off at 1.1650.

In contrast, markets saw GBPEUR spike on Friday and move above the 1.11 handle. The pair opened the session at 1.1076 and closed the week strong at 1.1118.

Back in May, Bank of England Governor Andrew Bailey asserted that negative interest rates were being actively reviewed. More recently, the BOE has noted that Sam Woods, the deputy governor for prudential regulation and chief executive of the Bank’s Prudential Regulation Authority, has written a letter to lenders asking how ready they are for rates moving to zero or below.

In the letter, Woods wrote: “We recognise that a negative policy rate could have wider implications for your firm's business and your customers… the Bank and PRA will consider the wider business implications, including on financial stability, safety and soundness of authorised firms and pass-through to the wider economy… this letter, however, is seeking information to understand firms' operational readiness and challenges with potential implementation, particularly in terms of technology capabilities”

Woods went on to add that “it is important for the Bank, PRA, and firms to understand the implications of these potential approaches to implementing a zero or negative Bank Rate, since the MPC may see fit to choose various options based on the situation at the time.” Although the BOE have officially said that the sending of the letter was "not indicative that the MPC will employ a zero or negative policy rate”, the letter does heighten the chances of a cut and money markets are already beginning to price in negative rates.

On the data front, only two notable releases today. At 14:45 we have Markit Manufacturing PMI from the US, closely followed the US ISM Manufacturing PMI at 15:00.

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