Pound Sterling US Dollar (GBP/USD) Exchange Rate Tumbles on BoE Negative Rate Speculation
UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate slumped by around 0.9% this afternoon. This left the pairing trading at around $1.2224.
Sterling suffered losses today as market focus turned back to the possibility of the Bank of England (BoE) taking rates below zero.
While the BoE’s Chief Economist, Andy Haldane played down the prospect of the bank taking rates into negative territory on Tuesday, GBP remained under pressure.
Analysts have noted that once the talk of negative interest rates has taken hold it will be difficult to shift markets away from it.
According to MUFG’s head of research, Derek Halpenny:
‘The door has been opened to the prospect of negative rates given the BoE clearly before has explicitly ruled out negative rates. We do not see Haldane’s comments yesterday as a signal of a reversal of the negative rate speculation.’
Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as US-China Relations Continue to Deteriorate
The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat this morning. This left the pairing trading at around $1.2312.
The US Dollar made gains this morning as traders focused on rising tensions between the United States and China.
Relations between the two continued to deteriorate over China’s proposed security law and the resurgence of protests in Hong Kong. This caused investors to flock back to the safety of the ‘Greenback’.
Recently, financial markets have been stuck in a tug-of-war between pessimism and optimism for the global economic outlook. This left the pairing largely flat this morning.
Some are betting on a rebound in business activity after the coronavirus pandemic brought the economy to a standstill. While other are worried about Washington’s threat of sanctions against Beijing for its treatment of Hong Kong.
Commenting on this, IG Securities’ senior FX strategist, Junichi Ishikawa said:
‘We are in a broad risk-on trend, but the only thing that can change this is the U.S.-China relationship.
‘More problems between these two countries would slow the Dollar’s recent decline and potentially lead to Dollar buying as a safe haven.’
Pound (GBP) Flat as EU Prepared to Shift Stance on Fisheries
Risk appetite was buoyed on Tuesday after Prime Minister Boris Johnson announced the re-opening of non-essential retail stores in June.
Added to this, improved global risk appetite on hopes for a recovery from the coronavirus crisis boosted riskier assets.
Sterling also received a boost after reports stated the European Union were prepared to shift its stance on fisheries in post-Brexit negotiations.
This has been a major sticking point, and this would be the first major concession from the European Union. This offered GBP some support on Tuesday.
Commenting on this, head of G10 FX strategy at CIBC Capital Markets, Jeremy Stretch said:
‘Risk is definitely on and that’s keeping the Dollar on the defensive pretty much across the board. That EU story has helped to encourage the further move to the topside.’
However, the risk-on mood faded after US President Donald Trump announced he would reveal the country’s response to China’s planned security bill for Hong Kong by the end of the week.
According to some reports, the United States is considering sanctions on Chinese officials.
Pound US Dollar Outlook: Will Risk Appetite Continue to Decline?
Looking ahead to Thursday, the US Dollar (USD) could make gains against the Pound (GBP) following GDP data.
If Q1 growth data shows the world’s largest economy has suffered a huge contraction and is on course for a recession, risk appetite will suffer.
Added to this, if tensions between the United States and China increases more than expected, risk appetite will continue to slide.
If the US announces the country’s response to China’s planned security bill for Hong Kong, traders are likely to flock back to safety. This will cause the Pound US Dollar (GBP/USD) exchange rate to slump further.