- The BOE has left its rates unchanged, yet all but closed the door on negative rates.
- Upgrading Q4 2020 forecasts raise output expectations for the future.
- The bank’s acknowledgment of vaccines also helps the pound.
Two negative make a positive – the Bank of England has concluded its review of negative interest rates and does not intend to use them. That is the main takeaway from “Super Thursday” but only one of several boosters.
Here are three pound-positive developments:
1) Saying no to negative: The BOE has stated it wants to send a signal that sub-borrowing costs are not imminent. While printing more pounds proved positive for sterling – as it allows for more government spending – the incessant talk of negative rates weighed on it. Now, the “Old Lady” has pushed the idea deep into the drawer.
2) Upgrade to past growth: While headlines have focused on the downgrade of future growth prospects, the BOE is lifting the floor for future Gross Domestic Product developments. The bank acknowledged that the most recent lockdowns were less severe than the initial one in March-April last year – causing less damage.
3) Shot in the arm, received: BOE Governor Andrew Bailey and his colleagues have acknowledged the impact of vaccines on future growth. The move adds a dose of optimism after the UK reached 10 million people or roughly 15% of its population. It also joins AstraZeneca’s promising conclusions in spacing out doses of the vaccine and signs of success from the UK and also from Israel, the world leader in the field.
All in all, the BOE has given a substantial boost to the pound, sending GBP/USD up nearly 80 pips. Can it continue higher? The ball now remains in the dollar’s court, and perhaps the greenback would pare some of its gains after the recent rapid rise. The next moves in cable depend on fiscal stimulus coming from Washington.
GBP/USD Price Forecast 2021: Cable braces for calendar comeback amid three exits
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