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The Bank of England (BoE) underscored that NIRP is not imminent, but the increase in COVID-19 restrictions and concerns over EU/UK talks may see the GBP/USD pair threaten the 1.25 mark, per Westpac.

Key quotes

“BoE Chief Economist Haldane reiterated, in a firmer tone, Governor Bailey’s statement that UK is not about to embark on NIRP. He stressed that the criteria for implementation have not been met and also stated that the process of ensuring an effective implementation of NIRP, should it be needed, would take months. Haldane is on the hawkish side of the BoE’s MPC, but he clearly intended to reduce market expectations of any early adoption of NIRP and to quell the reactions to the latest MPC minutes.” 

“UK’s COVID-19 case counts remain uncomfortably high but have not followed the worst-case acceleration that the Govt. outlined last week. The numbers might even be showing signs of plateauing. Nevertheless, tighter restrictions will remain in place for over 25% of the population with London still on alert. Further restrictions could therefore increase what Haldane referred to as the economic anxiety that might undo the UK’s ‘unexpectedly positive progress’ seen this year.” 

“This week’s round of UK-EU negotiations occurred with a less negative tone than had been feared, but any breakthrough remains unlikely and the goal of a deal by mid-October is diminishing. GBP/USD is therefore likely to remain within a 1.25-1.30 range.”