After a turbulent 24 hours, the pound is on course to record a weekly gain against both the dollar and EUR. After depreciating significantly following the Bank of England meeting, sterling was lifted by comments from EU Commission President Ursula von der Leyen yesterday, who noted that she remains “convinced” that an EU-UK trade deal is still possible.
Cable started the day off relatively strong trading at 1.2954, but after a less-than-positive message from the BOE, the pair fell as low as 1.2864. However, following uplifting news on Brexit, the GBPUSD managed to close exactly where it started the day.
In an interview with the Financial Times, von der Leyen made clear that the UK’s decision to pursue legislation overriding elements of the withdrawal agreement has come as a “very unpleasant surprise” to the EU. More importantly, she went on to add that she is “still convinced it [Brexit deal] can be done… it is better not to have this distraction questioning an existing international agreement that we have, but to focus on getting this deal done, this agreement done – and time is short”.
This news on Brexit was able to boost the pound after a gloomy BOE Interest Rate Decision. The BOE indicated yesterday that they may consider cutting interest rates below zero for the first time in its history as the UK economy faces a spike in COVID-19 infections and a risk of a no-deal Brexit. Governor Andrew Bailey noted that the BOE will begin “structured engagement” with UK bank regulators on how it might implement negative rates. Markets have forecasted from the comments yesterday that the next 10 basis points of easing will come in February, with another cut of the same magnitude to follow after the summer. Immediately after the meeting, the pound dropped by 0.7%.
Unlike cable, GBPEUR was unable to retract all of its losses from BOE meeting. The pair opened the session at 1.0994, before closing just below at 1.0952.
As for EURUSD, the pair opened at 1.1784 on the day, but managed to climb into the 1.18’s, closing off at 1.1824.
On the data front, at 07:00 we had the Retail Sales figures from the UK. The YoY figure posted under forecast at 2.8%, but still better than last months reading of 1.4%. This afternoon we also have the Michigan Consumer Sentiment, forecasted at 75.
