Sterling rallies after the Bank of England keep interest rates unchanged
The pound rallied against both Euro and Dollar on Thursday after the Bank of England decided to keep interest rates unchanged at 0.1%. The Bank of England is predicting that the U.K. economy will see a sharp rebound in 2021 due to the current vaccination of the U.K. population. The BOE went onto say that ‘GDP is projected to recover rapidly towards pre-Covid levels over 2021, as the vaccination program is assumed to lead the U.K. quicker out of Covid related restrictions.
The government have said over 10 million citizens have been vaccinated, leaving the nation on track to protect the highest risk groups by Feb. 15. With the government’s target in reach to vaccinate the most vulnerable in society, this could lead to lockdown restrictions easing a lot quicker than expected thus leading to an economic recovery being achieved earlier than previously predicted.
Furthermore BOE policy makers kept their bond purchase target at 895 billion pounds ($1.2 trillion), about 150 billion pounds of which will be acquired during the current year. Money markets have now trimmed bets on a rate cut, pricing 4 basis points of easing by December compared to 8 basis points before the decision.
Lastly the BOE stated that banks should prepare for the possibility of the negative policy tool being activated, though not for at least six months. The idea of cutting interest rates later down the line will depend on how the U.K. economy performs once lockdown restrictions are eased.
The dollar strengthened for the five consecutive day on confidence in the U.S. economic outlook and the possibility that Friday’s jobs report will be stronger than expected.
There is optimism building that the US economy is likely to recover stronger from the cornavirus pandemic better than other countries. That view was reinforced on Thursday when the U.S. government said the number of Americans filing new applications for unemployment benefits decreased last week. Initial claims for state unemployment benefits totalled a seasonally adjusted 779,000 last week, better than economists had forecast and better than 812,000 in the prior week.
Furthermore Democrats in the U.S. Senate were poised for a marathon “vote-a-rama” session aimed at overriding Republican opposition to President Joe Biden’s $1.9 trillion COVID-19 relief proposal. Differences still remain between both parties and the amount in stimulus which should be offered to help support the US economy.
GBP – 12:30 – Governor Bailey speaks
USD – 1:30 – Average hourly earnings – Forecast at 0.3% from previous 0.8%
USD – 1:30 – Non-farm employment change – Forecast at 77k from previous -140k
USD – 1:30 – Unemployment rated – unchanged at 6.7%
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