As we embark on a new month, the pound has taken another Brexit-related blow and has lost significant standing against its peers. This news, along with unfavourable remarks on Tuesday from Bank of England Governor Andrew Bailey regarding negative rates, was the final blow for sterling, with cable this morning opening in the 1.28’s and GBPEUR back in the 1.09’s.
GBPUSD opened yesterday at 1.2815, and managed to find some resilience in the session, closing off the session at 1.2912.
It was a similar story for GBPEUR; the pair opened weak at 1.0930, before rising into the 1.10’s, finally closing off at 1.1019.
The pounds volatile performance mirrors the messages being relayed by the Bank of England. On Tuesday in an online speech given to Queen’s University Belfast, the BOE Governor asserted that although the UK central bank are realistic about the potential challenges negative interest rates would pose for the banking system, the BOE are not ruling them out as a stimulant to the economy if necessary. Making his position explicitly clear, Bailey said “that does not mean to say that we rule out using negative interest rates for a moment… it means to say we are realistic enough, I think, to know the transmission mechanism would be affect.”
BOE Chief Economist Andy Haldane also gave his outlook on the future of the UK economy this week. Yesterday, at the Cheshire and Warrington Local Enterprise Partnership Haldane struck an upbeat tone noting that “planning for the worst is important, but needs to be accompanied by hope for the best. Encouraging news about the present needs not be drowned out by fears for the future… this is not boosterism; it is balance, at a time when behavioural biases and pessimistic narratives offer an unbalanced lens on the economy. The policy authorities, including the bank, have a public responsibility to avoid economic catastrophising” He went on to add that he believes good news, such as the economy’s quick recovery from lockdown, is being overlooked. He argued that the economy has already recovered 90% of its earlier losses after a 20% dip in Q2. Also, in spite of consumer spending now having recovered to pre-COVID levels (a year earlier than the BOE forecasted), Haldane declared that levels of consumer confidence remained low, with there being “a wedge… between peoples expectations and their spending, between their risk perceptions and economic reality”.
As for EURUSD, it was another quiet day of price action for the pair. Opening at 1.1724, the pair finished Tuesday’s session just 2 pips below at 1.1722.
On the data front, in the morning the main focus will be Manufacturing PMI’s from the UK, Eurozone, and Germany. In the afternoon we then have PCE Price Index, Labour Reports, ISM and Markit PMI’s from the US.