Since Bank of England Governor Andrew Bailey downplayed the possibilities of the BoE cutting interest rates yesterday, Sterling has made significant gains on both the Euro and the U.S. Dollar. While painting a gloomy outlook for the UK economy, Bailey said that there are “lots of issues” with cutting interest rates below 0%, noting that such a move could hurt banks. Interestingly, this comes only hours after external BoE member Silvana Tenreyro gave a speech noting the benefits of negative rates.
GBPUSD opened on Tuesday trading at 1.3545 and quickly gained momentum. The pair was able to surpass the 1.36 handle and finished the day at 1.3634. It is worth noting that the pair has tested the 1.3700 mark twice this morning but been unable to break past that barrier.
GBPEUR also capitalized on Bailey comments, reaching above the 1.12 mark before Tuesday’s close. The pair started the day at 1.1140 and was able to climb as high as 1.1205 at the close.
After dropping down into the 1.21 range, EURUSD has seen little price action. The pair opened yesterday at 1.2159 and closed not far off that mark at 1.2167.
In his online speech to the Scottish Chamber of Commerce, Andrew Bailey stated that UK may soon be reaching its “darkest hour”, with the economy facing a “very difficult period “. The governor said that economic activity during Q1 will be depressed until COVID-19 vaccines are widespread enough to allow lockdown restrictions to ease. On employment, he suspects Britain’s official jobless statistics understate the true rate of unemployment, due to the difficulty surveys currently have distinguishing between jobless people who were and were not actively seeking work. He added that the true rate of unemployment was probably closer to 6.5% than the official figure of 4.9%. Bailey declined to comment on whether his latest statements mean that this is more stimulus to come at the BoE’s February policy decision, stressing that officials would have a lot more data to review by then.
