21/05/2020

Potential rate cut edges Sterling lower


GBP

The pound edged lower yesterday after inflation fell below 1% and Governor Bailey refused to rule out the possibility of negative interest rates.

Inflation fell to its lowest level in 4 years as it came in at 0.8%, and this directly led to speculation that the Bank of England would cut rates in order to support an economy that has been ravaged by the coronavirus lockdown. Bailey spoke after the data release alongside 3 other MPC members at the Treasury Select Committee and spoke of the necessity to consider the possibility of cutting the base line rate below zero.

Sterling is currently on the back foot from fraught Brexit talks and this speculation is causing further pressure.

EUR

The Euro continued to strengthen on Wednesday as it enjoyed a boost from the recently announced common fund proposal that could push Europe closer to a fiscal union. Both Germany and France have proposed a 500 billion euro recovery fund to support regions and sectors that have been hit hardest by the pandemic and would allow borrowing by the European Commission on behalf of the whole EU.

There was also the release of a survey that showed German investor sentiment had improved above expectations and this further fuelled the rise in the common currency.

Key announcements

09:30 – GBP – Markit Services PMI (May) – Forecast to come in at 25
13:30 – USD – Initial Jobless Claims (May)- Forecast to fall to 2400K from previous 2981K
19:30 – USD – Fed Chair Powell Speech


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