Currency Note

Bank to offer QE but where on rates?

By Chris Nye June 18th, 2020

The Bank of England Monetary Policy Committee pronounces on interest rates and quantitative easing (QE) today, and while no shocks are expected on rates, there could be movement if the QE is greater or less than the expected £100bn.

President Macron of France is coming to London today (no two weeks’ quarantine for him then) to give the city the Legion d’Honneur and have talks with Boris Johnson. Could there be movement on Brexit talks – or at least quarantine?

The importance of face-to-face meetings has been highlighted by a new book from President Trump’s former National Security Advisor John Bolton, which suggests foreign leaders play Trump like a fiddle in personal meetings.

The dollar faces threats, but is once again benefiting from safe haven status as a new wave of Covid-19 threatens.

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Bank to offer QE but where next on rates?

It’s always a big day when the Bank of England’s Monetary Policy Committee reports, especially when a central bank is staring down the barrel of a deep recession.

Interest rates are expected to stay on 0.10% but an extra £100bn could go onto quantitative easing. That may be priced in already, but movements in the exchange rate are likely if there is discussion about a drop in interest rates next year to negative territory, or more quantitative easing than anticipated.

A further drop in interest rates would be negative for sterling, as would anything more than £100bn of QF.

Yesterday there was little movement during the day and sterling ended up where it started against the euro and half a cent below against the USD.

Inflation data that came out yesterday showed inflation of just 0.5% in the year to May. This was pushed down by the falling price of petrol that month, but it’s widely felt that prices generally, with the possible exception of food, will be cut in an effort to get people spending.

From To

 

Euro car sales stall but have high hopes

The euro lost half a cent against the USD during the day, while ending the day where it started against sterling.

Car sales collapsed by 50% in May compared to last year, but the fact that over 580,000 Europeans escaped lockdown to buy new cars was seen as encouraging by some. Carmakers hope that people will buy a new car this summer instead of taking a summer holiday and will be eschewing public transport.

Today will be a quiet day for data releases, but we do have the Euro Economic Bulletin, a new release from the European Central Bank.

US awaits jobless claims and Fed hints

The US dollar had a choppy day against GBP, and after a positive start weakened gradually during the day against the euro.

News of a spike in coronavirus cases in the US and a potential second wave in China, as well as geopolitical tensions between India and China, are all seeing a renewed interest in the greenback’s status as a safe haven currency.

The dollar is likely to surge against the pound at midday today if the Bank of England either offers more than £100bn of QE or sounds like it is preparing te ground for negative interest rates.

At 12.30 today (US time) we have data on initial jobless claims – a measure of the number of people filing first-time claims for unemployment insurance. This has spiked in recent weeks due to the lockdown but could be reducing now. Then tomorrow we have clues as to the US Federal Reserve’s monetary policy, with a speech from Federal Reserve Chairman Jerome Powell.