Currency Note

All eyes on Bank of England meeting today

By Christopher Nye February 4th, 2021

The Bank of England will hold its monetary policy meeting later today and the markets will be looking out for any mention of negative interest rates. Sterling has been well supported since Governor Andrew Bailey pushed back on the prospect of negative rates earlier this year. However, any further comments could significantly impact the pound.

Europe’s slow progress with its vaccine rollout continues to weigh on the euro, which shrugged off better-than-expected PMI data yesterday.

The dollar is strong this morning due to economic optimism in the US, brought about by the incoming stimulus bill, economic data and progress with their vaccine programme.

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GBP: Pound awaits BoE decision

The pound has weakened slightly this morning but is still at strong levels ahead of the Bank of England’s monetary policy meeting, which is due to take place at midday today. The markets will be looking out for any decisions or comments surrounding negative interest rates. Such a rate cut has never been made in the UK before, so it could have a significant impact.

After Governor Andrew Bailey’s comments earlier this year which pushed back on the prospect of negative rates, sterling has been well supported. Any comment that counteracts this today could have an impact on the pound. Bailey is due to make a speech at 12:30 today.

A new trial in the UK is going to look at whether two COVID-19 vaccines can be mixed. If successful, this will give more flexibility to the vaccine rollout in the UK and worldwide.

GBP/USD chart

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EUR: Euro hits two-month low against dollar

The euro hit a two-month low against the dollar yesterday as Europe’s slow vaccine progress continues to weigh. This has increased worries that lockdowns all over Europe will need to be extended and increased expectations that there will be a decline in economic growth this quarter.

PMI figures for the Eurozone came in slightly better than expected yesterday. Despite this, figures showed that both the services and manufacturing industries remain in contraction territory.

Retail sales figures are due for the Eurozone later this morning.

USD: Dollar strong on economic optimism

The dollar is strengthening against the pound and euro on a positive economic outlook, which is unusual as the greenback usually weakens in times of market optimism.

However, the progress of coronavirus vaccinations, President Joe Biden’s steps to pass more fiscal stimulus, and improving economic data has helped the dollar. Later today, jobless claims figures and factory orders will be released for the US.

Non-farm payrolls will be released tomorrow, which will be a significant indicator of how the US economy performed in January.

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