After the Fed has reinforced its rhetoric of “doing whatever is necessary” to support the economy, namely by indicating that it will keep interest rates very low until 2023 and expand the asset purchase program, maintaining an extraordinary level of liquidity, the Bank of England will join its North American, European and Japanese counterparts in the territory of zero or even negative interest as with the last two. At least, that is what analysts expect after Governor Andrew Bailey opened the issue last month, saying he is part of the bank’s “tool kit”, and after the minutes of Thursday’s meeting explained the start work to implement the measure, something that is being done in conjunction with the sector regulator, since the Bank of England itself had already warned that below-zero interest rates could damage the UK’s financial system.
The initial reaction was selling pressure with the GBP/USD currency pair falling from $1.2974 to $1.286, but after only two hours, Her Majesty’s currency had recovered from losses and was accumulating some gains, in a move that indicated that investors had already incorporated this possibility, focusing instead on the central bank’s willingness to react if the economic situation deteriorates, either because of the pandemic, or if Brexit does not result in an extended free trade agreement between the UK United Kingdom and the European Union, as provided in the BOE’s forecasts. In any case and despite some more intense fluctuations, the value of the Pound should remain relatively stable and within the current channel between $1.25 and $1.35, at least until there is greater visibility in the two biggest economic risks I have mentioned.
