First BoE emergency cut since 2008
Sterling was unable to make any headway yesterday and gradually lost traction as previous position adjustments and the weaker US dollar ran its course. Underlying concerns over the global economy continues to give a significantly negative factor to the UK given its exposure to international trade volumes and under-performing UK equities curbing further Sterling support.
The Pound dipped to 1.2860 against the Dollar with the Euro advancing to the 1.1520 area in choppy trading. Chancellor Rishi Sunak will announce the latest UK budget today around 11.30am and Sterling gained slightly yesterday on government speculation that overall infrastructure spending would be increased to £600bn over 5 years.
Initial and any currency gains made overnight were quickly reversed this morning after the Bank of England cut interest rates in an unscheduled move to match record lows of 0.25% from 0.75%. The bank will also introduce a new funding scheme for small businesses. Sterling dipped below 1.2835 with the Euro close to the 1.13 figure but has since made a recovery.
The US NFIB small-business index increased slightly to 104.5 for February from 104.3 previously and significantly above consensus forecasts with no evidence within the data that the coronavirus outbreak had a significant impact. The Dollar was able to recover some ground yesterday as US yields moved higher while commodity currencies lost ground. There was a shift in futures markets in Europe with the chances of a 0.75% rate reduction on March 18th declining to below 50% which helped support the Dollar, although volatility remained high across all asset classes.
Eurozone GDP was confirmed at 0.1% for the fourth quarter of 2019 with a marginal revision in the year-on-year rate to 1.0% from 0.9%. Markets remain extremely cautious over the Italian situation as a national lock-down came into operation. Domestic activity will almost certainly be hit hard and fears over a wider Euro-zone impact on trade disruption are beginning to circle. German Chancellor Merkel also appeared to reject an immediate fiscal stimulus which undermined Euro sentiment. Markets continue to price in an interest rate cut for Thursday’s ECB meeting, but the bank has little, if any room for manoeuvre.
The Euro was hampered by renewed selling in Euro-zone equities as major indices ended in negative territory and as of writing, the single currency is trading at 1.1310 against the Dollar.
Data to watch
07:00 – GBP – MPC Official Bank Rate Votes
07:00 – GBP – Monetary Policy Summary
07:00 – GBP – Official Bank Rates
09:30 – GBP – GDP
09:30 – GBP – Manufacturing Production
11:30 – GBP – Annual Budget Release
12:30 – USD – CPI
12:30 – USD – Core CPI
14:00 – USD – Treasury Sec Mnuchin Speaks
14:00 – USD – Crude Oil Inventories