The pound rallied on Tuesday in response to comments from the Bank of England’s (BoE) governor Andrew Bailey.
Sterling appears to be consolidating these gains so far this morning, with GBP/EUR stable at €1.1206 and GBP/USD flat at $1.3676. GBP/CAD is buoyed at C$1.7404, while GBP/AUD and GBP/NZD tick up to AU$1.7622 and NZ$1.8959, respectively.
Looking ahead, the focus this morning will be on a speech by European Central Bank (ECB) President Christine Lagarde. Will a cautious outlook from Lagarde send the euro lower?
What’s been happening?
The pound struck higher through yesterday’s trading session following comments made by BoE governor Andrew Bailey on the current state of the UK economy.
While Bailey warned that the UK economy faces a ‘very difficult period’ due to the new lockdown measures, GBP investors shrugged off the warning in favour of Bailey’s accompanying comments regarding negative interest rates.
This poured cold water onto speculation that the BoE could slash interest rates below zero as Bailey said that ‘there are a lot of issues’ with such a move.
The euro, meanwhile, faced some headwinds on Tuesday after German chancellor Angela Merkel indicated that the Eurozone’s largest economy may remain in lockdown until April in an effort to suppress the more-infectious strain of the coronavirus from the UK, which is thought to be spreading throughout Germany.
The US dollar also came under pressure yesterday, as a rebound in equity markets in response to renewed US stimulus hopes saw the safe-haven currency pare its gains from the start of the week.
What’s coming up?
Kicking off today’s trading session we have a speech by European Central Bank (ECB) President Christine Lagarde.
Lagarde is expected to touch on Europe’s coronavirus situation, and address the impact of the latest lockdown measures on the Eurozone’s economic outlook, with the euro likely to face additional pressure if she strikes a dovish tone.
In the UK the focus will be on domestic coronavirus developments. With growing pressure on the government to impose stricter restrictions, any rise in infections could trigger some GBP selling.
On the other side of the pond, we will see the publication of the latest US consumer price index, where a modest acceleration in inflation may further weaken any demand for additional monetary stimulus within the Federal Reserve.
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