BOE Rate Cut Expectations To Increase
Last week, the Bank of England revealed that negative interest rates are now under consideration, which immediately caused a sell-off of GBP. Although the interest rates were kept unchanged at 0.10%, it was the headline that said the MPC had been briefed on the BoE’s plans to explore how a negative bank rate could be implemented effectively that caused the GBP selling.
The net result of the latest BoE decision was that money markets brought forward expectations on UK interest rates turning negative. Negative rates were seen in Feb 2012 after the meeting vs March 2021 prior to the meeting.
The BoE’s decision had an immediate impact on money markets, which caused a shift in expectations for UK interest rates. Negative rates were seen in Feb 2012 after the meeting vs March 2021 prior to the meeting, which illustrates the significant influence that BoE’s decision had on market sentiment.
The risks are now mounting for the UK with Brexit negotiations on a knife edge, job losses anticipated for the end of the UK furlough scheme and rising COVID cases to increase the chances of a natural lockdown. As a result expect sellers on the GBPJPY pair in the coming days as long as this situation remains the base case.
