IFX Market Report: Thursday 4th February 2021

Sterling is a touch softer this morning as markets eagerly anticipates the latest Bank of England interest rate decision. The consensus among economists is that the BoE will leave rates unchanged, choosing instead to focus on a spring rebound in economic activity. An interest rate cut would likely undermine Sterling, causing it to depreciate against its peers. Today’s event will also see the Bank’s Prudential Regulation Authority give their review into whether negative interest rates would be feasible in the UK. The review was initiated back in October, and their findings will likely determine whether a cut to 0% or below is possible without negatively impacting the country’s financial services sector.

GBPUSD experienced a volatile session yesterday but stayed within the 1.36 range. Opening at 1.3671, cable went on to close just below that mark, at 1.3650. Overnight the pair has depreciated as markets await the latest BoE decision.

GBPEUR in contrast held relatively firm on Wednesday’s session, opening the day at 1.1356 and closing at 1.1352.

EURUSD also finished lower on Thursday. A weaker Euro meant that the pair opened at 1.2039 and closed at 1.2023.

Despite convincing arguments from MPC members, such as Silvana Tenreyro, investment bank TD Securities have a assigned a 70% chance that the BoE’s Monetary Policy Committee votes 9-0 to keep rates and Quantitative Easing unchanged. Tenreyro said in January that “while we can never have complete certainty, negative interest rates should with high likelihood boost UK growth and inflation”. However, back in January Governor Andrew Bailey put a January rate cut to bed when he stated there are “lots of issues” with negative rates. With this said, a lot has changed since January, meaning the “issues” that Bailey refers to may not be now so prevalent?

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